Colombia Billionaire’s M&A Spree Fuels Bond-and-Stock Split
(Bloomberg) -- Billionaire banker Jaime Gilinski’s bids to take over some of Colombia’s largest companies has rewarded stock owners with some of their best returns in years. Bondholders have been less fortunate.
Dollar notes sold by financial conglomerate Grupo de Inversiones Suramericana SA -- one of Gilinski’s targets -- lost 1.2% over the past month, the worst performance among financial companies in Latin America after a distressed Mexican lender. Debt sold by Bancolombia SA, which is partially owned by the holding company known as Grupo Sura, aren’t faring much better after losing 1%, according to data compiled by Bloomberg.
For years, investors have prized the stability of Medellin-based companies that make up the Grupo Empresarial Antioqueno, or GEA, an association of businesses that relies on a system of cross-investments to protect them from the very type of takeover offers that Gilinski is making. The bond selloff is being fueled by speculation that Gilinski would load the companies up on debt to execute the deals and, as owner, take a more aggressive stance on expansion and acquisitions than what’s typical for companies tied to the GEA.
“For bond investors in the various companies, the risks are not just how Gilinski would finance any acquisition but who would be the next target,” said Roger Horn, a senior strategist at SMBC Nikko Securities America in New York.
But according to a person with direct knowledge of Gilinski’s strategy, he isn’t considering a leveraged buyout that would increase the companies’ debtloads. He would rely on long-term loans from the First Abu Dhabi bank to finance as much as 70% of the transaction, the person said. Gilinski would use dividends from his ownership stake to pay back the loan, instead of rolling it over into company debt, the person said, asking not to be identified discussing private matters.
The dynamic of mergers and acquisitions making a winner out of equity investors while punishing bondholders is fairly typical of the corporate world. And indeed, that’s what’s happening in Colombia.
Grupo Nutresa SA shares have soared almost 30% since Gilinski in mid-November offered as much as $2.2 billion to take a controlling stake in the company, a maker of snacks, chocolates, coffee and other food. Weeks later, he and his son, Gabriel, launched an offer of as much as $1.2 billion for a substantial stake in Sura, sending those shares up close to 30%. Grupo Argos SA -- another company in the GEA -- have also jumped amid speculation the conglomerate could be Gilinski’s next target.
Neither Nutresa or Argos have overseas bonds.
Gilinski, whose net wealth of $4.3 billion makes him one of Colombia’s richest people, declined to comment. So did representatives for Sura. The tender offer for Nutresa closes Dec. 17, while the offer for Sura is expected to gain approval from regulators this month.
Gilinski is unlikely to make significant changes to the management or company strategies if he takes over, said Lorena Reich, an analyst at Lucror Analytics.
“As such, it doesn’t seem that it will have an impact on the bonds,” she said.
Still, the offers have thrust the usually private Gilinski into the limelight. Because his Banco GNB Sudameris is closely held, there’s little information on how that company operates, leaving investors in the dark about how he might oversee any acquisitions.
The Gilinksis “are an important family but they don’t have a track record of opening up their numbers, of having a fluid communication with investors and that’s key,” said Cynthia Huaccha, a fixed-income analyst at Credicorp Capital. “It doesn’t help in building trust.”
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