February 5, 2015 / 6:58 PM / 3 years ago

UPDATE 1-Cencosud breaks new ground with 30-year bond

(Updates with additional information)

By Paul Kilby

NEW YORK, Feb 5 (IFR) - Chilean retailer Cencosud is breaking new ground today with a rare 30-year bond as part of a dual-tranche offering that marks the region's first high-grade corporate offering of the year.

Few borrowers from the double A rated country have sought 30-year money in the international market. The only exception has been state-owned copper giant Codelco as well private names like iron ore company CAP and utility Endesa - which issued long-term paper back in 2006 and 1997, respectively.

"It is important for the Chilean dollar market and is a significant milestone that opens the door for other Chilean corporates," said a New York based corporate bond trader.

The move makes sense given the recent US Treasury rally and the subsequent bid for duration, not to mention a flight to safety bid among high-grade names that haven't been impacted by the recent dive in crude prices and the corruption scandal at Brazilian oil unit Petrobras.

At initial price thoughts of mid 300s, the 10-year was seen coming with a premium of some 30bp over the existing 2023s, which were being quoted earlier today with a G-spread of around 320bp. And with the IPTs on the 30-year a low 400s, it seems that leads were targeting a 10-to-30s curve of around 75bp.

That is slightly flatter than corporate credit curves in Mexico, where the likes of Alfa, Mexichem and Fibra Uno have seen the spread differential between 10s and 30s close to 100bp or above, said a senior banker.

"It is hard to say where the 10 to 30s curve should be (in Latin America) given that the US 30-year Treasury is trading where the 10-year used to be, but 75bp is not out of line," the senior banker said. "Even the US high grade 10s to 30s has been in the 40bp-55bp range."

The yield on the 10-year US Treasury was being quoted earlier today at around 1.81%, while the long bond was being spotted at 2.42%.

With books heard breaching the US$2bn mark early morning, leads have subsequently refined guidance tighter to 350bp (plus/minus 12.5bp) on the 10-year and 425bp (plus/minus 5bp) on the 30-year amid expectations that the company would lock in final spreads of 337.5bp and 420bp.

Either way, by tapping 30-year money the retailer will be making a strong statement for a Triple B minus credit that remains borderline investment grade, with a negative outlook from Moody's and Fitch.

A recent credit card joint venture with Scotiabank allowing the Canadian bank to become a 51% stakeholder in Cencosud's retail financing business is seen as credit positive. Cencosud is expected to use most of the US$1.2bn received from that transaction to pay down debt.

According to Moody's the company's adjusted debt to Ebitda ratio was 5.1 times for the last 12 months ending September 2014 - high for its ratings category.

Still a 30-year issue could encourage other more traditional and less cyclical Chilean names to also lock in cheap long-term funding.

"I can only think that utilities and pulp and paper names are thinking about this," said the senior banker. "It makes sense if you have a long term asset story. The only issue is that it is tough to hedge FX risk for 30 years."

HSBC and Scotiabank are the lead managers on the transaction, which has been rated Baa3/BBB-. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)

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