4 de febrero de 2016 / 21:55 / en 2 años

As oil suffers, Colombia eyes tough time for bond offer

NEW YORK, Feb 4 (IFR) - Colombia is preparing to tap the bond markets but at a rough time, as a slide in crude prices has dented fiscal accounts and is threatening the oil exporting nation’s credit standing.

Colombia hopes to offer a dollar or euro bond soon, Finance Minister Mauricio Cardenas told market participants this week, according to a source.

But the government is also in the midst of trying to negotiate a peace with FARC rebels and bring an end to Latin America’s longest-running civil war.

Some think that will hamper its ability to push through tax reforms intended to help make up some of the revenue shortfall caused by the plummet in crude oil prices.

“The government is delaying the planned tax reform to avoid burning too much political capital ahead of the peace process referendum,” Nomura analyst Mario Castro wrote last month.

Yet those reforms are seen as crucial for how the market views Colombia, whose bonds have been punished as oil has tumbled as low as US$26.50 per barrel on January 20.

Moody’s downgraded state-owned oil company Ecopetrol to junk last month, and there are fears a downgrade of the sovereign could follow - which brings some urgency to selling debt now.

While en route to Washington to promote the peace process, government officials stopped in New York this week for a lunch hosted by BBVA, Goldman Sachs and JP Morgan, the source said.

The officials said Colombia wants to raise US$1.5bn via cross-border bonds or multilaterals, the source said.


On the same day that oil hit US$26.50, Colombia’s new benchmark 10-year bond - the 4.5% 2026s - jumped to an all-time high of 5.692%, some 100bp wide to pricing last September.

While the bonds recovered this week to 5.13% as crude rebounded somewhat, the chaos around oil is hurting risk perception of the country.

“Colombia is heavily exposed to the commodity cycle, and we don’t see it improving anytime soon,” said one US-based investor. “A third of the country’s exports come from oil.”

But investment is key: portfolio flows are financing a large part of Colombia’s current account deficit, which blew out to 6.6% as of the third quarter last year.

Such concerns have also hit the peso, which has fallen close to 15% in value against the dollar since early November, in turning exacerbating inflationary pressures.

Colombia did sell a controlling stake in power generator Isagen to Canada’s Brookfield for close to US$2bn in January, bringing in much needed investment flows.

But some worry that a downgrade is still on the cards, especially if the sovereign has not managed to push through the reforms by the second half of the year.

“The risk is on the political side,” said Castro at Nomura. “If they don’t get something meaningful approved, rating agencies could act.”

Klaus Spielkamp, head of fixed income at Bulltick, thinks the market has already accepted it as given.

“The market has been pricing in a downgrade with a negative outlook,” he told IFR.

“Anything different from that, such as downgrade with a stable outlook, will be positive for Colombia.” (Reporting by Paul Kilby; Editing by Marc Carnegie)

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