Codelco raises cash to face crisis

Codelco raises cash to face crisis

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Chile Latin America US Coronavirus

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Chile's state-owned copper mining company Codelco said it issued $800 million worth of bonds on Wednesday, raising cash to face market uncertainty and carry on financing investments.

"Codelco has a solid cash position and this issuance will help consolidate it even more," CFO Alejandro Rivera said in a press release.

BNP Paribas, HSBC, Mizuho and Scotiabank arranged the deal for Codelco, pricing the new 3.75% 2031 notes at 99.816 to yield 3.77%, or 315 basis points over US Treasury bonds, said a source involved in the deal.

Orders reached $10.6 billion, or more than 13 times the size of the offering, the source added.

"Demand was so strong that the issuer was able to tighten pricing significantly and pay zero in new issue concession," the source said.

Codelco opened the deal with the initial price talk in the high 300 basis points over US Treasury bonds. It set guidance at 325 basis points, give or take 10 points, and then launched the deal at 315 basis points, the source said.

Moody's gave the notes an A3 rating with a stable outlook, citing Codelco's status as a state-owned issuer, but adding that the company faces lower output and higher costs with copper trading around $2.30 per pound.

In January, Codelco raised $2 billion in a two-part bond sale to finance projects, refinance debt and maintain a solid cash position. It carried out a previous two-part bond deal for $2 billion in September last year.

Before Wednesday's transaction, Codelco had $15.6 billion in outstanding bonds in the cross-border market and $570 million in the local market, according to data provider Refinitiv.

Early this year, Chile's Finance Minister Ignacio Briones ruled out a capital injection from the government to help Codelco upgrade its mines, saying the state-owned miner will have to look for its own financing as the government spends an additional $3 billion on social programs, according to press reports.

Codelco is the largest copper producer in the world with 9% of global production. The company posted $12.5 billion in revenues in 2019, down 12.5% on the previous year, as copper prices declined 7.9% and copper sales slumped 7.4% last year. Production, meanwhile, fell 5.5% year-on-year and EBITDA dropped 13.9% to $4.04 billion in 2019.

As a result, Codelco's contribution to the Chilean Treasury sank 25.9% to $1.34 billion last year, according to the company's most recent corporate presentation.