Coming on the heels of a successful bond from its parent and a one-notch upgrade, Telefonica Celular del Paraguay (TeleCel) hit the bond market on Thursday after an over six-year hiatus.
The telecoms company, which is 100% owned by Millicom, has launched a US$300m eight-year non-call three bond at 5.875%, comfortably inside initial price thoughts of low 6%.
At that level, the deal is coming tight to Millicom’s US$ 6.25% 2029 (Ba2/BB+), which is trading around 6%, and basically flat to Comcel, Millicom’s Guatamala unit, which has a 6.875% 2024 (Ba1/BB+) trading at around 5.8%.
The holding company enjoyed substantial demand for the US$750m 2029 when it was issued this month at par and bankers were hoping that some of that would spill over into the TeleCel deal.
Liberty Latin America, which is backed by US billionaire mogul John Malone, had been eyeing Millicom as a potential acquisition target earlier this year.
But the move, which would have created one of the largest telcos in the region, never came to fruition after the two parties terminated discussion in January.
“The recent holdco deal went very well, and was four times oversubscribed,” said a banker. “People got under allocated and so there should be a lot of money left over for TeleCel.”
Even so unlike Millicom, TeleCel is coming with a relatively small size of US$300m, putting off some investors who prefer not to buy illiquid names.
“It is a solid credit but we didn’t play because of size,” one investor told IFR.
Indeed, TeleCel has been an improving credit story, as reflected in Moody’s decision on Monday to upgrade it to Ba1 from Ba2 with a stable outlook.
As justification for the upgrade, the ratings agency cited strong operating performance, good financial stability and higher profitability despite intense competition.
Adjusted gross debt has climbed from 1x between 2012 and 2014 to around 2x but with a cash balance of around US$45m, TeleCel has enough to cover short-term maturities, Moody’s said.
“TeleCel’s low-debt profile coupled with comfortable amortization schedule and adequate liquidity furthermore
promote long-term financial stability,” Moody’s said.
Thursday’s offering is also debt neutral as proceeds are being used to take out US$300m of its 6.75% 2022s, which were issued in 2012 to help fund its acquisition of Cablevision in Paraguay.
On the downside, both Moody’s and Fitch, which rates the credit BB+, cite an aggressive dividend policy to the holding company, which is likely to pressure free cash flow generation.
BBVA, BNP Paribas, Citigroup and Itau are acting as leads on the deal, which is expected to be rated Ba1/BB+.
