Feb 13 (IFR) - Blue-chip credit Coca-Cola FEMSA (KOF) has always had ambitious pricing goals, but bankers are wondering whether it can really achieve its cheap target levels on a new international bond.
The Latin American company, the largest Coca-Cola bottler in the world by sales, has been heard discussing a level of 80 basis points (bp) over Treasuries for a new 10-year issue.
But while rates are super low at the moment, allowing companies to issue debt incredibly cheaply, pricing a bond less than 100bp over Treasuries might be too much to expect.
Bankers say the price will ultimately be largely determined by how the company’s existing bonds are faring in the secondary market.
Its outstanding 2020 bonds were priced in early 2010 at 60bp tighter than the Mexican government’s bonds - at the time one of the smallest coupons ever seen out of Latin America.
The 4.625% printed at 99.491 to yield 4.689%, or 105bp over Treasuries.
But that bond is now trading wide or flat to peers with lower credit ratings than KOF’s A2/A-/A, and has sold off since initial discussions began in December about a new debt issue.
The spreads have climbed from a recent low of 119bp on October 18 to around 150bp this week on a G-spread basis, according to one banker.
Because of this, many in the market say the goal of 80bp for the new issue may be just a little too bold - although 100bp seems well within reason.
“At the end of the day, investors will price to the secondary (market),” one banker said. “Unless the 2020s rally to 65bp over, a new 10-year at 80bp will be ambitious.”
KOF is roadshowing its new deal in the United States this week, according to one account, winding up on Thursday in Atlanta and Milwaukee.
The company is believed to be considering a broad range of tenors from five to 30 years for the new deal, which is being led by Citigroup, Goldman Sachs and JP Morgan.
Pricing the deal inside of comparable US bonds, rather than any in Mexico, is thought to be the goal this time around.
KOF last year bought a majority stake in Coca-Cola Bottling Philippines for about US$689m, making it a truly global player rather than simply a Mexican or Latin American name.
By explaining its story in roadshows to investors, some say, KOF will be able to tighten the pricing on the new issue somewhat.
“They could reposition this curve,” said a debt capital markets banker. “I could see them coming at 100bp.”
At the current G-spread of around 150bp, the KOF 2020s compare to Dr. Pepper’s 2022s (Baa1/BBB), which are being quoted at around 92bp; Heineken’s 2023s (Baa1), quoted at 110bp; and InBev’s 2023s at 84bp over Treasuries.
Meanwhile KOF’s parent Coca-Cola has 2021s trading at a G-spread of 66bp.
In its favor for reaching the ambitious pricing target, KOF has its underlying credit strength, the illiquidity of the existing bonds and the relatively high price of the 2020s.
All of these factors could be leveraged to encourage investors to participate, if KOF indeed does decide to raise the full US$1bn-US$1.25bn it is heard seeking and establish a liquid benchmark.
But at approximately 111 dollars, the price on the KOF 2020s is not that high - and being able to come 70bp inside the current 150bp G-spread seems unlikely.
With the 10-year US Treasuries at around 1.975% on Tuesday, an 80bp finish would equate to a yield of 2.775% - an incredibly cheap price for any new KOF debt.
Some bankers say that the secondary levels on the existing 2020s don’t reflect KOF’s underlying credit quality. But, as one put it, the secondary pricing is real - and there for a reason.
“You don’t get 70bp of arbitrage in single A names,” the banker said. “The Street would keep putting in higher and higher prices until they got paper.”
Timing for any deal remains unclear. Bankers are wondering whether KOF will wait for the release of its fourth-quarter earnings before moving forward with what is expected to be an SEC-registered bond. There has also been talk that the borrower might want to meet with Asian investors, given its recent acquisition in the Philippines.
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