TGS sets initial pricing on seven year to continue Argentine issuance run

Published 18 July 2024 04:12 PM

By Oliver West

Gas pipeline operator has typically traded 70bp inside Telecom Argentina, which issued last week

Argentine gas pipeline operator Transportadora de Gas del Sur set initial price thoughts of 9.125% area on Thursday for a proposed July 2031 bullet bond, looking to become just the fourth Argentine company to issue abroad this year — and the second in two weeks.

The starting levels suggest that, with a typical amount of yield compression between IPTs and launch, CCC/B rated TGS could land its seven year non-call three deal close to where analysts had estimated fair value. The issuer has indicated the deal will be benchmark sized.

When TGS began a roadshow earlier in the week, Lorena Reich, credit analyst at Lucror Analytics, had written in a note that the firm saw fair "in the high 8s".

"Year-to-date, the TGS 2025s have traded around 70bp inside the Telecom Argentina 2025s and 2026s, circa 100bp inside the comparable YPF senior notes, as well as almost flat to the Pampa Energía 2026s," said Reich. "We arrived at our fair value by assuming a similar spread versus the newly issued Telecom Argentina 31s [issued on July 11], the [unsecured] YPF 2029s, and the Pampa Energía 2029s, as well as adjusting for differences in duration."

The Telecom Argentina 2031s, issued last week at 9.7%, are amortising notes with a six-year average life. According to data from MarketAxess, these 9.5% coupon bonds had traded up from their reoffer price of 99.109 to 99.75 by Wednesday afternoon, a yield of 9.56%.

Similarly, analysts at Mariva Capital Markets said that they expected a new TGS seven year to trade between 8.5% and 9%.

One major EM corporate bond buyer said that Telecom Argentina's trade had been priced too tight for their taste, but that the firm was looking at Argentine corporates again — after several years — based on their optimism over the Vaca Muerta shale formation in the western province of Neuquén.

This meant they'd be considering TGS's new issue.

“TGS is a pretty good transaction," said the investor. "Its offtakers are the big oil companies, and it operates that much-needed Vaca Muerta infrastructure.

"We are playing the Vaca Muerta, hydrocarbon story because it is based on commodity and oil prices, which are relatively supportive. Argentina has the infrastructure place.”

Debt refinancing

Although its ratings are constrained by Argentina's country ceiling, TGS has "solid" credit metrics, according to Lucror. Its net leverage is just 0.1 times Ebitda.

Proceeds from TGS's new issue will be primarily used to finance a tender offer for its $470.3m of 6.75% 2025 bonds, with the company having offered to repurchase the notes at par. One LatAm syndicate banker said that this should also be supportive of the transaction.

"In Argentine new issues, especially, investors want to see proceeds being used to buy back debt," said the banker, not working on the TGS deal. "This was something that some people complained about with Pan American Energy's new deal [back in April] and was what worked for Telecom Argentina."

Mariva's analysts said that, although it's likely the Fed will reduce interest rates before the end of the year, they still "see value" in TGS "extending duration with a possible higher coupon rate".

"The Argentine corporate yield curve could remain flat until more international reserves are built, and sovereign debt maturities are cleared," they said.

Citi, Itaú, JP Morgan and Santander are bookrunners on TGS's 144A/Reg S deal.

GlobalCapital reported last week that TGS was one of a select few Argentine companies that were likely looking at returning to the dollar market in the wake of Telecom Argentina's well-received transaction. Several others have upcoming debt maturities that they may wish to refinance while Argentine issuers still have some access to international capital markets.

As reported, oil and gas company Compañía General de Combustibles (CGC) still has $91m outstanding under its March 2025s, according to data from MarketAxess, while MSU Energy has a $600m 6.875% bond maturing in February 2025. MSU's bond is trading at around 81.75 with a yield in the high 40% area, suggesting there is some uncertainty over the fate of that debt.

YPF, which issued in January, also has bonds maturing in July 2025 and February, while Pampa Energía's next maturity is a $293m 9.5% bond in August 2026.

Additional reporting by George Collard