The lack of political risk surrounding Colombia’s close presidential campaign was clearly highlighted by investors’ reaction to Ecopetrol’s $2 billion bond. On May 21, as the Colombian presidential candidates Oscar Zuluaga and incumbent Juan Manuel Santos neared their decisive second round of voting (June 15), the oil producer generated orders of about $11 billion.
Lead managers Deutsche Bank and Goldman Sachs benefited from the underweight Colombia positions of many emerging market investors – with relatively little international paper outstanding from the country.
|Colombia’s president and candidate Juan Manuel Santos casts his vote in Bogota on May 25|
The Baa2/BBB/BBB rated 2045 trade priced a 5.875% coupon at 99.336 to yield 5.922% (US treasuries plus 255 basis points – a new-issue premium of about 5bp when compared with the issuer’s outstanding 2043s).
Tight pricing was also evident from Colombian pipeline company Ocensa’s $500 million bond, which priced earlier in May. The deal generated orders of about $2 billion for its 4% 2021 bond and lead managers Citi and HSBC tightened the bond by 50bp (compared with Ecopetrol’s tightening of 20bp) between initial guidance and pricing, closing at US treasuries plus 185bp.
The phenomenon of sharp pricing is not unique to Colombian issuers – Mexico’s oil credit Fermaca tightened from initial price thoughts of 7% to price at par to yield 6.375% (Citi and Deutsche led the transaction) – but bankers say the deal demonstrates the maturity of the investment-grade credit, with political uncertainty not having any impact on Colombian companies’ ability to come to market and secure tight pricing from investors.
The lack of political risk noise in the market reflects the similarity of the two candidates’ likely economic strategy. “With neither candidate likely to take steps to wean the economy off its reliance on commodities, the victor will probably preside over a period of slower economic growth,” according to David Rees, emerging markets economist at Capital Economics.
“In terms of economic policy there is very little to choose between the two candidates. Both men have previously served in Mr Uribe’s government and are staunchly market friendly. That being said, Mr Zuluga’s pledge to boost access to credit is something of a concern. With Colombia coming to the end of a credit-fuelled boom in domestic demand, another period of strong bank lending could simply store up problems for the future.”
The main difference between the two candidates centres on Santos’s policy of peace talks with guerrilla organization Farc. The election is effectively a referendum on Santos’s policy of dialogue.
Capital Economics predicts that Colombia’s GDP will grow by an average of 4% during the next government (down from 4.7% in Santos’s first term) regardless of who is president.
Bankers expect the strong demand for Colombian paper will also continue, regardless of the outcome of the election.