NEW YORK, May 9 (IFR) - Banco do Bogota announced a Tier 2 10-year bond on Monday as it sought to tackle weaker capital ratios in the wake of a steep devaluation of the Colombian peso over the last year.
At guidance of 6.5% (+/- 12.5bp), the subordinated trade was seen coming some 100bp wide to the bank’s existing subordinated 2023s, which were trading at around 5.5%.
Leads and other bankers put fair value on a new 10-year at 6.00%-6.125%, meaning a concession of around 37.5bp-50bp at mid 6s or 25bp-37.5bp at the tight end of guidance.
“It doesn’t have a ton of juice, so the question is how much will they tighten?” said a DCM banker away from the deal.
The borrower was heard targeting around US$500m-US$600m in size after amassing some US$1.3bn in demand, putting it short of the up to US$1bn size telegraphed by the rating agencies.
The deal, rated Ba2/BBB by Moody’s and Fitch, should find an audience among international investors who like Colombia’s second-largest bank.
But the likely lack of local participation gave at least one trader pause.
“I like the name, as it is Grupo Aval’s cash cow,” the trader said.
“But locals won’t be involved, as it is a holiday in Colombia, and they like senior unsecured and high-grade risk - and this is neither,” said the trader.
The bank is sticking to an old style Tier 2 structure that gradually loses its regulatory credit but is still cheaper than issuing new-style Tier 2 securities with loss-absorption provisions, say bankers.
That is a negative for Moody‘s, which said this month that it does not consider the Tier 2 notes as capital and that the notes “will not address the bank’s weak capitalization”.
The steep weakening in the Colombian peso has impacted the bank’s capital ratios, forcing it to raise more regulatory capital, bankers said.
“Colombian banks in general with operations offshore have suffered because of the devaluation of the Colombian peso,” said the DCM banker.
Moody’s cut the bank’s standalone baseline credit assessment from Baa3 to Ba1 earlier this year, citing the impact of a weaker peso on an already low adjusted capital ratio.
“Given the bank’s significant dollar-denominated investments in Central America, the depreciations contributed to a 20% and 30% increase in the peso value of Banco de Bogota’s risk weighted assets,” Moody’s said this month.
“(This reveals) the susceptibility of the bank’s capital position to currency swings.” (Reporting by Paul Kilby; Editing by Marc Carnegie)