LATAM BONDWRAP: Lucror Likes Colombia Oil Debt on Growth Rebound

Published 19 November 2021, 15:46:27.271 GMT

(Bloomberg) -- Debt from Latin America’s independent oil and gas producers, and especially from Colombian producers, has attractive upside as oil prices remain strong and the sector ramps up production as the region rebounds from the pandemic, according to Lucror Analytics’ Lorena Reich.

* While other countries have big sovereign-aligned oil and gas producers, bonds from Colombia’s independent names like Frontera, SierraCol Energy Andina, Gran Tierra Energy and Geopark could see gains, Lucror senior analyst Reich said in an interview from Buenos Aires

** “Companies that suffered in 2020 are now ramping up production, and the combination of strong oil prices means these names offer strong upside,” she said

* Latin American retailers like Cencosud, MercadoLibre, and Americanas also took big hits during the pandemic, and now look more appealing

** “There’s good outlook for those credits as consumers go back to spending more”

** Still, global supply chain uncertainty could continue to weigh on retailers

** Bonds due in 2023 from Argentina real estate company and shopping mall operator IRSA look attractive

*** “The bonds have a less than one-year duration and currently trade below par, but it’s hard to recommend anything in Argentina”

*** Even good companies with strong management teams are weighed down by macro imbalances, restrictions, and Argentina’s FX climate

* “Tourism credits” are also a sector to watch, but Reich prefers to stay selective, as individual companies managed the pandemic very differently

** Select bonds from airlines and hotel management companies across the region offer value

** Aeropuertos Argentina 2000 should also recover as the government lifts restrictions and air traffic recovers

** Investors should watch Mexico hotel operator Grupo Posadas, which just struck a deal with creditors to exchange its bonds

** But things could change in a quarter, as the regional recovery has only just started

* Presidential elections in Brazil in 2022 will keep assets volatile

** “We prefer to be selective on Brazilian credits going into 2022 and follow a bottom-up approach rather than a specific sector”

** Embraer should continue to benefit from the global recovery on regional aviation, which should allow the company to continue deleveraging

** “CSN is another story we see as compelling, especially given the recent under performance versus Brazilian BB credits”

By Scott Squires

--With assistance from Caleb Mutua.