Billionaire Retail Titan Can Avert Downgrade: Chile Fixed Income

(Bloomberg) -- Cencosud SA, the South American retail giant founded and led by billionaire Horst Paulmann, has what it takes to avoid a credit downgrade even as Chile’s economy reels from the biggest social unrest in decades.

That’s the message investors got after Cencosud’s dollar bonds due 2023, 2025 and 2027 returned 0.7% last week despite fresh warnings that a credit downgrade to junk is looming. That result beat the average return of all Chilean bonds in the period, as well as that of rival Falabella, whose 2025s returned a mere 0.3%.

Billionaire Retail Titan Can Avert Downgrade: Chile Fixed Income

“Cencosud has a balance sheet full of attractive assets that it can sell to avoid a downgrade,” said Jorge Garcia, a trader at financial services firm Nevasa. “The market is giving it the benefit of the doubt.”

The South American nation’s worst social unrest in a generation has led to higher uncertainty, shuttered stores and a drastic reduction in business. October retail sales plunged by 16% in Santiago and 12% nationwide compared to a year prior. Policy makers have warned that unemployment and consumer demand are set to worsen as the number of worker dismissals spikes.

Billionaire Retail Titan Can Avert Downgrade: Chile Fixed Income

Cencosud is currently rated at the lowest investment grade by Fitch Ratings Inc. and Moody’s Investors Services, with negative outlooks. Fitch set the negative outlook on Nov. 21, saying unrest in Chile and a weak economy in Argentina will erode its results. Cencosud declined to comment on this story when contacted via email.

Earlier this year, Cencosud completed the IPO of its shopping malls in efforts to pay down debt. JPMorgan warned last week that the retailer may have to continue with sales of its assets, such as a greater share of its mall unit.

Read more: South America Retail King’s $1 Billion Malls IPO Sets Record

In yet another rebuff, research firm Gimme Credit became the latest to sound the alarm on risks of a downgrade. If Cencosud is cut to junk, “the risk is high of more downside,” analyst Cedric Rimaud wrote in a note last week.

Cencosud’s dollar bonds due 2027 have returned a negative 4.6% since the beginning of the unrest on October 18, while its 2025s have fallen 2.1%, according to data compiled by Bloomberg. Similarly rated Chilean bonds have returned a negative 0.9% in the same period.

Other Chilean retail bonds have also been hit hard. The yield on AD Retail’s 2024 local CPI-linked bonds rose to 19.1% from less than 4% when the unrest began, according to prices from LVA Indices. For Empresas Hites’ 2026s, the yield is up to 6.7% from 2.1% on October 18.

Intervention Bearing Fruit

Two weeks into the central bank’s multi-billion dollar intervention to prop up the peso, it was the best performing currency among emerging markets with a 1.9% gain last week. Accordingly, Chile’s monetary authority has reduced its spot market interventions to $100 million a day, while boosting forwards, as volatility subsides.

Swap yields last week fell more than 30 basis points, signaling views of lower risk. The drop was bolstered by news that President Sebastian Pinera survived an impeachment attempt.

Billionaire Retail Titan Can Avert Downgrade: Chile Fixed Income

The market will pay attention this week to the Central Bank’s minutes of its Dec. 4 meeting in which it left its key rate unchanged at 1.75%.

THIS WEEK:

  • In Chile:
    • Dec. 19: Central Bank minutes
  • International:
    • Dec. 16: U.S. manufacturing PMI
    • Dec. 17: U.S. industrial production
    • Dec. 18: U.K. CPI

NEWS:

  • Chile’s Volcom Securitizadora Plans to Sell 2 Series of Bonds
  • Chile Govt Says Head of Budget Office Rodrigo Cerda Resigns
  • Analyst See Chile Economy Posting Sharp Drop in November: Survey
  • Chile Economists See Key Rate Left on Hold Next Meeting: Survey
  • Cencosud Downgrade to Junk ‘Looming’, Gimme Credit says
  • Chilean Peso Leads Global Gains Amid Ongoing Intervention
  • Chile’s Pinera Approval Rises After Reaching Record Low: Cadem

BONDS IN PROCESS OF REGISTRATION OR ISSUANCE:

CompanyAmount to issueTermRating
Volcom Securitizadora760,000 UF30 yearsAAA (ICR & Humphreys); AA+ (ICR), AA (Humphreys)
Tecno Fast4m UF30 yearsA+ (Feller Rate and ICR)
Colbun7m UF each10 and 30 yearsAA-(cl) [Fitch]; AA (Feller Rate)
Copeval2m UF10 yearsBB+(cl) [Fitch]
Sigdo KoppersA+(cl) [Fitch]
Vina San Pedro Tarapaca1.5m UF each10 and 30 yearsAA-(cl) [Fitch]
Corporacion Universidad de Concepcion5m UF20 yearsA- (ICR)
Grupo Empresas Navieras5.5m UF30 yearsA-(cl) [Fitch]
Caja Los Andes2.5m UF (2 series); CLP69.9b (2 series)7 years eachAA- (ICR y Humphreys)
Rutas del Desierto6.4m UF22 years
A3 Property Investments5m UF10 and 30 yearsA (ICR & Feller Rate)
Red SaludA(cl) [Fitch]
Mall Plaza10m UF each10 and 30 yearsAA+ (Feller Rate); AA(cl) [Fitch]
Inmobiliaria Nialem3m UF10 and 30 yearsA+ (Feller Rate)
Fondo de Inversion Independencia Rentas Inmobiliarias7m UF10 yearsAA-(cl) [Fitch]; AA (Feller Rate)
Inversiones Prevision Security1.5m UF30 yearsA+(cl) [Fitch]; A+ (ICR)
Compania Industrial El Volcan10 and 30 yearsAA- (ICR & Feller Rate)
Embotelladora Andina10m UF10 and 30 yearsAA(cl) [Fitch]; AA (ICR)
Ruta del Limari6.8m UF24 yearsA+ (Feller Rate)
Nexus Chile Health1.5m UF10 yearsA- (ICR & Humphreys)
Enaex2.5m UF each10 and 30 yearsAA-(cl) [Fitch]; AA (Feller Rate)
AVLA1m UF10 yearsA- (ICR)
Forum30m UF30 yearsAA(cl) [Fitch] AA (ICR)
Aguas del Altiplano2.2m UF15 yearsAA (Feller Rate)
Aguas Araucania2.2m UF15 yearsAA (Feller Rate)
Aguas Magallanes1.1m UF15 yearsAA (Feller Rate)
Ruta del Algarrobo11m UF
Global Soluciones Financieras3m UF10 years
Caja La AraucanaCLP331.2b and CLP75.6bBBB (Feller Rate); BBB- (Humphreys)
Inversiones Confuturo2m UF25 yearsAA- (Feller Rate & ICR)
General Motors Financial Chile4.3m UF10 yearsAA-(cl) [Fitch]
SMU3m UF8, 10 and 25 yearsA- (Feller Rate & ICR); BBB+ (Humphreys)
Inmobiliaria Apoquindo3m UF9 years
Infraestructura Alpha1.5m UF12 yearsA- (Feller Rate)
LV-Patio Renta Inmobiliaria2.5m UF10 yearsA+ (Feller Rate & ICR)
Gama Servicios Financieros5m UF10 yearsA (ICR)
Brookfield Americas Infrastructure Holdings Chile9.5m UF12 yearsA (Feller Rate)
Blumar3m UF10 and 30 yearsA- (Feller Rate)
Penta Financiero3m UF10 yearsA+ (ICR)
Red Megacentro3m UF10 and 30 yearsA+ (ICR); A (Feller Rate)
Quinenco10m UF each10 and 35 yearsAA (cl) [Fitch]; AA (Feller Rate)

RECENTLY ISSUED BONDS:

DateCompanyAmountPlacement rateMaturity
November 20Caja de Compensacion 18 de SeptiembreCLP54b and CLP40b4% and 7.55%6 and 10 years
November 12Incofin1m UF2.54%5 years
November 5Banco Internacional1m UF2.08%28 years
October 29Watt’s1m UF1.5%10 years

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