Chilean telephone company Compania de Telecomunicaciones de Chile’s (CTC) Wve-year e200 million bond deal last July was one of the brightest and most fought over deals to come out of Latin America in the past year. Mandates to bring Chile’s leading telecom company to the market were hotly contested. They eventually went to Germany’s Dresdner Kleinwort Benson and Spain’s BBV. The two bookrunners, helped along by JP Morgan and ABN Amro as joint leads, managed to bring the deal to market at incredibly tight margins.
When swapped into dollars, the deal came in at around 200 basis points over US treasuries, around 40bp tighter than the level at which an existing CTC yankee bond was trading at that time. Although criticized as aggressive by some of the investment bankers’ competitors, the deal has to be seen as a triumph for the issuer and for the banks that used their European distribution power to excellent effect to get the deal away at such a price.
Although some members of the syndicate became nervous when the market showed signs of weakness, the leads’ decision to hold on to the original pricing and take on some of the bonds themselves was in the end vindicated. Says an oYcial at Dresdner Kleinwort Benson: “The pricing was aggressive, but there was a great deal of appetite for telecoms paper in Europe and also a lack of Chilean paper in the market. We found that in fact many big tickets were not that price-sensitive on this deal and many buyers have held on to these bonds.”
The transaction was also the first investment-grade Latin American corporate issue in euros and the Wrst euro deal to come out of Chile, thus giving European investors their first chance to invest in a Chilean name without taking on any currency risk.
The two-week roadshow convinced investors of the value of a deal that offered a 100bp pick-up on European A-minus credits and the majority of the deal was sold before launch. The issuer had a good story to tell and this was helped by the fact that the recently appointed CEO turned up to explain the company’s Wnancial strengths. CTC is rated at the sovereign ceiling for Chile and had an equity capitalization of more than $6 billion at the time of the deal, making it the largest quoted company in Chile. CTC also boasts 90% of the local domestic telephone market and, despite the overall economic slowdown in Chile in the preceding year, CTC’s revenue had climbed an impressive 14%. European investors also felt comfortable with exposure to a company that is 44% owned by Telefónica de España.
The CTC deal has opened a new market for Latin American borrowers that had previously relied on the US dollar markets for foreign funding. Other Latin corporate borrowers are sure to follow.
