LatinFinance - July/August 2014 - 29
attributed part of the success to its
"intensive" contact with bond buyers over
previous years, and said it would use the
cash to buy back more expensive debt.
The Ba3/BB/BB- rated borrower put an
end to persistent rumors about an equity
market transaction in May when it filed for
a carve-out listing of JBS Foods. LF
CENTRAL AMERICA / CARIBBEAN
CORPORATE WITH THE BEST CAPITAL
MARKETS STRATEGY
ICE
ICE closes a novel financing
package, effectively using
markets to fund growth
Costa Rican electricity utility Instituto
Costarricense de Electricidad (ICE) lit up
the market with a different type of deal this
year. It closed a $905 million financing,
package for the 305.5 megawatt Reventazón
hydroelectric project it sponsors, using
a rare structure partly made up of a
bond supported by the Inter-American
Development Bank (IDB).
The February 2014 package included
a $200 million A/B loan from the IDB. Of
this, the B tranche - $135 million - was
then privately placed with bond investors
through the Reventazón Finance Trust.
Separately, the IFC lent $100 million, and
local banks came in with $470 million
equivalent in colones. Banco de Costa
Rica, Banco Nacional de Costa Rica,
Banco Popular y de Desarrollo Comunal
and Banco Crédito Agrícola de Cartago
participated.
Unlike in a traditional A/B loan (where
the A loan comes from the development
bank and the B loan comes from partner
commercial banks) in this case, the B
loan portion was funded through private
placement in the bond market. As such, the
borrower was able to get 20-year funding.
Selling the B tranche in bond format opened
the deal up to longer-term funds from
institutional investors, who were also able
to take advantage of the IDB's preferred
creditor status.
"For ICE, it has been an important
achievement, to access a new source of
financing, such as the project bond market,
which is seen as one of the most innovative
alternatives [...] at a moment in which the
JESÚS OROZCO, ICE
"FOR ICE, IT HAS
BEEN AN IMPORTANT
ACHIEVEMENT, TO
ACCESS A NEW SOURCE
OF FINANCING, SUCH
AS THE PROJECT BOND
MARKET, WHICH IS
SEEN AS ONE OF THE
MOST INNOVATIVE
ALTERNATIVES"
traditional sources of finance are seen as
limited by the regulations related to the
risk of funding," says Jesús Orozco, chief
financial officer of ICE.
The bond was rated BBB- by Fitch,
above Costa Rica's sovereign BB+ rating.
It was rated Baa3 by Moody's, in line with
the Moody's rating on the sovereign. BNP
Paribas managed the bond sale, while
Clifford Chance advised on the legal side.
In addition to its Reventazón
hydroelectric project funding, ICE is also
notable for its 2013 30-year bond. In May
2013, ICE sold a $500 million 30-year
bond, taking advantage of low rates to lock
in long-term funds. The sale drew more
than $4.5 billion in orders for the stateowned integrated electricity provider and
telecommunications operator's senior
unsecured bond.
It priced at 98.359 with a 6.375% coupon
to yield 6.5%, the tight end of 6.5%-6.625%
guidance that followed 7%-area initial
price thoughts. An investor called it an
"important transaction for the country"
at the time. Proceeds from the sale were
going towards debt repayment, capital
expenditure and general corporate
purposes.
"In 2012 and 2013, ICE entered the
international market under the 144A
format, placing $500 million at 10 and 30
years, respectively enjoying the excellent
prevailing market conditions," Orozco says.
"In the same way, the entrance in the
project bond market, in a smaller and more
sophisticated market, is also considered a
success and at a very opportune moment,
as the window of low interest rates was
shrinking." LF
BEST CORPORATE FOR SHAREHOLDER
TRANSPARENCY
Ultrapar
Ultrapar's merger with Extrafarma last year showed
it is still exceptionally good
at communicating with
investors
Ultrapar remains an exemplary firm in
the realm of corporate governance and
transparency. Its acquisition of Extrafarma
last year is an interesting case in point,
receiving almost unanimous approval
from shareholders representing 75% of the
company's capital, at a time when minority
investors are increasingly objecting to M&A
transactions in Brazil.
Speaking to LatinFinance in June,
Ultrapar's chief financial officer and head
of investor relations, André Covre, says
Extrafarma afforded Ultrapar an entry
into pharmacies, a rapidly growing and
consolidating market. The ability to
piggyback on Ultrapar's fuel retail outlets
was going to further help Extrafarma to
grow as a business, says Covre.
But making sure it was the right
transaction for the company, and on the
right terms, was the first step towards
ensuring the transaction got the go-ahead
from investors. "If we've convinced
ourselves, we should be able to convince
our shareholders" says Covre of the
rationale for a more considered evaluation
of the sector and the companies, and for the
deal itself.
Covre says Ultrapar first started studying
the pharmacy sector over three years
ago. Ultrapar's management first met
Extrafarma two years ago, and started
negotiations about a year after, finally
announcing the deal in late September
last year. The deal was made via a share
exchange with up to 2.9% of Ultrapar's
shares being issued to Extrafarma's
shareholders.
Covre says the company contacted sellside analysts on the very night the deal was
announced, and made senior management
available for a presentation and questions,
both in English and Portuguese. The next
step was for the chief executive and chief
financial officer to head to Europe and
July/August 2014 - L ATINFINA NCE.COM 29
http://www.LATINFINANCE.COM
LatinFinance - July/August 2014
Table of Contents for the Digital Edition of LatinFinance - July/August 2014
Table of Contents
LatinFinance - July/August 2014 - Cover1
LatinFinance - July/August 2014 - Cover2
LatinFinance - July/August 2014 - Table of Contents
LatinFinance - July/August 2014 - 2
LatinFinance - July/August 2014 - 3
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LatinFinance - July/August 2014 - Cover3
LatinFinance - July/August 2014 - Cover4
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