Colombia’s state oil company is facing a heavy premium to return to the global bond market for the first time since 2021 as rates continue to rise for emerging-market borrowers.
(Bloomberg) — Colombia’s state oil company is facing a heavy premium to return to the global bond market for the first time since 2021 as rates continue to rise for emerging-market borrowers.
Ecopetrol SA is selling 10-year, US dollar-denominated notes with a coupon of around 9.375%, or a spread of 580 basis points compared to similarly-rated Treasury notes, according to initial pricing talk from people familiar with the matter. The driller last sold benchmark bonds in October 2021 at a spread of 307 basis points.
The company said the proceeds will be used to fund part of its 2023 investment plan and to pay off $472 million left on a loan it took out to fund the acquisition of Inteconexion Electrica SA, a Colombian utility it purchased in 2021. It also has $1.8 billion of bonds due in September, according to data compiled by Bloomberg.
“The company has a very ambitious capex plan for the year plus the maturity of the 23s in September and the ISA loan so I guess they want to start pushing those maturities,” said Lorena Reich, senior credit analyst at Lucror Analytics. “That’s the only reason why I think they would pay so much and not wait for better technicals.”
Ecopetrol’s existing dollar bonds fell Tuesday, with the 2043 notes sliding 1.8 cent to 85.4, the lowest level since late November, according to indicative pricing data collected by Bloomberg.
The sale, which is expected to price Tuesday, marks the first issuance of 2023 for a major Latin American corporate borrower. The Mexican government opened the year with a $4 billion bond sale last week. Debt sales from the region are expected to bounce back in 2023 after rising borrowing costs caused last year’s sales to fall to the lowest since 2008.
Colombia has been forced to pay higher rates since losing investment grade in 2021 and electing President Gustavo Petro last year. The government, which owns 88.5% of Ecopetrol, has spooked investors with plans to phase out oil and coal as part of a transition toward renewables.
Colombia and Ecopetrol are rated BB+ by S&P Global and Fitch Ratings, while Moody’s still rates the company in the lowest investment grade level.
“With Ecopetrol’s Moody’s investment-grade rating possibly at risk, this may be an opportune time to price this deal,” said Jaimin Patel senior credit analyst at Bloomberg Intelligence.
–With assistance from Andrea Jaramillo and Sydney Maki.
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