Gran Tierra cancels exchange amid Colombia sell-off

Oliver West

June 22, 2022 02:43 PM

Leftist’s election victory takes toll on Colombian oil credits

Colombian oil company Gran Tierra Energy on Tuesday cancelled an exchange offer that would have allowed it to extend bond maturities, as left-wing candidate Gustavo Petro’s election victory triggered a slump in Colombian assets.

On May 24, Gran Tierra asked holders of its $300m 6.25% 2025s and $300m $7.75% 2027s to switch into a new 8.75% amortising 2029 bond. The company had already extended the early-bird deadline from June 7 to June 22 as just 39% of bondholders participated — well below its minimum requirement of 80%.

LatAm syndicate bankers had told GlobalCapital that they expected Gran Tierra would be able to push the deal over the line. But a further downturn in bond markets coupled with the triumph Petro — who has pledged to halt new oil exploration in Colombia — appeared to make investors even more fearful. Gran Tierra said on Tuesday that it had cancelled the entire exercise.

Lorena Reich, senior credit analyst at independent credit research provider Lucror Analytics, said this was “very disappointing news” for Gran Tierra, as the company was “looking to improve its debt maturity profile following an impressive recovery in its operations and financials”, including the ability to repay its revolving credit facility in full and reduce leverage.

“We believe that the timing was unfortunate, given the strong risk-off global sentiment combined with leftist Gustavo Petro’s recent win at the Colombian presidential elections,” said Reich.

Rebound begins

Gran Tierra’s B/B rated 2027s fell from around 93 cents on the dollar at Friday’s close to around 92.75 on Tuesday when markets reopened after a public holiday in the US and Colombia — a yield of around 9.6%. But the sell-off was far greater in larger Colombian names as investors digested the prospect of the country having a left-wing president for the first time ever.

The Colombian peso sold off 5% versus the US dollar on Tuesday before rebounding somewhat to end around 3% lower. The fall in bond prices was not quite so sharp: Colombia’s 2032s traded as low as 72.75 cents on the dollar on Tuesday, said one LatAm syndicate banker, having been above 75 on Friday, though they then recovered to around 73.50.

“There are a lot of fires in Latin America right now which isn’t helping market sentiment, but this didn’t feel like a fire sale, which I guess is encouraging,” said the syndicate banker. “The bond markets weren’t as bad as FX and equities.

“Right now, bond investors have their eye on Petro’s rhetoric in the coming days and who he picks as finance minister.”

The sovereign’s curve has been supported somewhat by the fact that the surge in oil prices so far in 2022 has enabled it to reduce its funding needs — from $3bn in international bond markets to around $1.6bn as of the latest update last week.

Still, despite encouragement from DCM bankers at several times during the first half of the year, Colombia has — unusually — not been issued abroad so far this year, meaning the new government is going to have to woo investors soon.

Oil names were some of the hardest-hit among Colombian credits, with state-owned giant Ecopetrol’s bonds briefly reaching new lows and Carlyle Group-owned exploration company SierraCol the worst performer on the day.