What Jumps Out – Out Of The Box Bonds

This week we saw a groundbreaking bond issuance of $184 million USD which was carried out by Odinsa, the concession arm of Grupo Argos and which for the first time in Colombia was wholly dedicated to a sole infrastructure project.

The underlying asset was the tunnel that links Medellin with the international airport. Back in the mists of time there was only a single lane road for visitors to traverse, then around a decade ago half the route was upgraded to a double lane highway which reduced the travel time to around an hour. Then in August 2019, El Condor, after years of studies, investigations, appeals and finally constructions, inaugurated the longest tunnel in South America – which they soon after sold to Grupo Argos/Odinsa.

The object of this week’s exercise was to reduce the cost of debt related to the purchase and that was successfully achieved with total demand of $305 million USD for the 8 year bonds at a bid/cover of 1.66x. It has been a very busy week for the group who announced just a few days ago a strategic alliance with Macquarie, one the largest infrastructure players in the world – they will jointly drive ahead a portfolio of assets valuing $1.4 billion USD, that work may include the expansion of the aforementioned tunnel due to its success.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Perhaps the only disappointment here was the time that it has taken for Colombia to wake up to the possibilities when it comes to funding large scale infrastructure projects. More years ago than I care to remember, I can recall merrily trading equity names from all over Asia that were directly related to highway projects and even today there are Bloomberg screens with lists of stocks such as Bangkok Expressway, Zhejiang Expressway or even Central Nippon Expressway. As we can see, whilst there is little imagination when it comes to names, we are talking about multiple countries to which we can add Malaysia and India as well as many others. As well as stocks there are bonds, derivatives and warrants.

The root of this was the enormous mega-structure build out across the Asian region in the 1980’s & 1990’s which still continues to some extent, but for some years now Colombia’s 4G program has been one of the largest infrastructure projects on earth. As overseas funds visited and heard the story of the 4G build out, the subject of financing would come up in conversation.

As experienced emerging market investors there was some incredulity that there was no way to invest directly in these projects, neither the equity or bond markets were open to them – Asian governments had spoiled them.

Hopefully as 4G becomes 5G and 20G one day down the road, the authorities, investment banks and the consortium involved can think a little further out of the box and perhaps circumvent much of the stress involved with the financing of 4G.

Odinsa has demonstrated the appetite that there is to get involved, perhaps easier given that the tunnel is already revenue generating, however no doubt the risk reward could be suitably adjusted in order to attract investors at an earlier stage of projects; given they are government driven the risk is anyway somewhat mitigated.

Here is hoping that Bogota Metro or Cali Freeway will one day be names we might all buy and sell in the market.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops