Chile’s Entel raises $360 million from UF bond sales
October 7, 2019 |
Telecommunications company to use the proceeds to pay down bank debt
Chile’s Empresa Nacional de Telecomunicaciones (Entel) sold $360.5 million worth of nine-year and 20-year inflation-linked bonds with the intention of using the proceeds to pay down bank debt, a source told LatinFinance.
Led by Banchile and BICE, the telecommunications company sold 6 million worth of unidad de foment (UF), an inflation-linked currency instrument, for the short-term bonds at a 0.87% rate of return. It sold the 2 million UF worth of the longer-term bonds at a 1.34% rate of return, according to a filing with the Santiago Stock Exchange late Thursday.
In the secondary market late Friday, the 3.5 percent May 2035 UF was quoted up 0.02 points in price to bid 101.51, yielding 1.123%, according to data provider Refinitiv.
Entel will use 70% of the proceeds to pay off bank loans before they mature, according to one market source. In a statement, Entel’s manager of finances, Felipe Ureta, said demand was robust for the bonds, a sign of the “strong confidence” that investors have in the company’s management and strategy.
Entel suffered downgrades in March 2018, when both Fitch Ratings and S&P Global Ratings cut their ratings of the company on concerns of its slow debt reduction stemming from EBITDA losses in Peru, the only market it operates in outside of Chile.
The agencies, which both downgraded Entel to BBB- from BBB, also citied concerns relating to Entel’s weaker performance in its home market, where it has faced a rise in competition. S&P left its rating unchanged in its latest revision in August. Entel, however, continues to be the market leader in Chile’s mobile market, a position it is expected to sustain thanks to its strong brand recognition and fully integrated portfolio of services.
The company increased its mobile customers by 4% year-on-year in the second quarter of this year, led by growth in Chile and Peru, according to its latest earnings report.
In March, ICR Chile, another credit ratings agency, revised its outlook for Entel to “stable” from “negative,” saying improvements in its business operations in Peru have reduced the downward pressures on overall earnings.
Entel’s revenue in Peru surged 15% in the second quarter on the year, helped by a 9.9% increase in mobile clients. However, ICR warned that competition in both markets remains a threat to revenue growth, which could slow its debt reduction.
Inflation in Chile rose 0.2 percent in August, with September's data due soon. Annual inflation rose 2.3 percent in the 12-month period. The lagging mining sector, which produces about one-third of the world's copper, has kept inflation tamped down near the bottom of the government's target range. On September 4, the central bank lowered the inflation target to 2.7 percent from 2.8 percent for year-end 2019, while also cutting the economic growth forecast to a range of 2.25%-2.75% from 2.75%-3.5%. Exports of copper account for roughly 15% of the country's economic output.