Monday, 2 March 2009

Bancolombia Expects to Conclude Subordinated Bond Placement This Week as Colombian Corporate Bond Sales Thrive Amidst Crisis

Bancolombia, Colombia's largest bank, said its board approved the sale of up to 1 trillion pesos (about $440 million) in peso-denominated subordinated notes. Proceeds from the sale will be used for general corporate purposes. The bonds might have maturities between four to 15 years, we heard from a market participant who deals with corporate issuances. We believe this is a sale aimed at bolstering capital (we were just told the placement will likely be a sale of Tier 2 bonds. its first-ever.) The sale should be concluded this week, the source told us.

Although the bank seems to be well capitalised, it ramped up provisioning of bad loans in the second half as the quality of loan portfolios deteriorated across the board. The company said on its full year earnings report courtesy of PRNewswire that ''during 2008, allowances for loan losses increased to 2.13 trillion pesos (4.8 percent of gross loans and financial leases), maintaining the level of coverage, measured by the ratio of allowances to past due loans, close to 135 percent.´´ The number is considerably high but good, giving Bancolombia a good coverage in case delinquencies spike. ''The delinquencies ratio -- loans overdue more than 30 days -- increased slightly to 3.6 percent by the end of the quarter ended December 31, 2008 from 3.5 percent the previous quarter.´´ This might mean that either they turned more stringent in their credit policies or are only catering to the most creditworthy consumers and companies.
Results for the foruth quarter were also affected by the higher level of provision charges -- net provisions totaled 474.7 billion pesos in the three months ended in Dec. 31, marking an increase of 95 percent fromt he third quarter of 2008 and and a 125 percent jump from the last quarter of 2007.

Click here on this link for the release of full-year results.

In a recent posting (click on this link to read it,) we highlighted the growing activity in the domestic corporate debt market. Although the economy seems rather battered by the impact of the global downturn and the decline in demand for commodity exports, the corporate debt market looks increasingly resilient. Food companies such as Alpina have made their debut in the local markets. In contrast, Brazil has only seen one significant debt sale. In other countries like Mexico, the sale are most focused on commercial paper -- a market for debt with maturities of less than a year.

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