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Why the CMI bond issue whetted the markets' appetite (and what it means for Guatemala)

Why the CMI bond issue whetted the markets' appetite (and what it means for Guatemala)

April 28 2021

Economics, Prensa Libre

Corporación Multi Inversiones (CMI), of Guatemalan capital, made its debut in the international stock market by carrying out two operations that raised US $1 billion.

CMI Directors from left to right: José González-Campo, Senior Director of Corporate Affairs and Sustainability; Alfonso Neira, CMI Financial Director; Enrique Crespo, CEO of CMI Capital; Juan Luis Bosch, President Chairman of CMI Capital. From left to right, behind: Aldo Vallejo, Director of Corporate Affairs and Sustainability at CMI; Jorge Martínez Sanche, Director of Corporate Governance and Jay Gallegos, General Director of CMI Energy. (Free Press Photo: Courtesy)

"This operation opens a road and points a very clear path for companies in the region to access international markets," Enrique Crespo, CEO of CMI Capital from New York, told Prensa Libre. The executive provided details about the transaction carried out, as well as the destination of the resources.

What are these operations about?

The structure of the transaction totals US$1 billion in two blocks.

A block of US $700 million of a green bond issue in international capital markets was successfully placed a few days ago, and had an oversubscription of five times its amount, that is, demand was for approximately US$3.5 billion for the US$700 million that were offered in the market.

What that means is that there was a very large appetite in the international capital market, and that the start and debut of CMI was very successful.

On the bond side, we have investors from all over the world, and half come from the United States, a third from Europe and another part from Investment Funds in Latin America and Asia. This reflects the confidence of the international financial community in CMI and on renewable energy.

The second block of the transaction was a syndicated loan for US$300 million, which was awarded to three financial institutions in the region: Grupo Banco Industrial in Guatemala, Grupo Davivienda in Colombia and Grupo Bladex in Panama.

This US$300 million syndicated loan was oversubscribed seven-fold, with a demand for US$2.1 billion (coming) from international financial institutions to participate in it.

Do you rate this as a successful operation?

Investors and financial institutions found it very positive and attractive to invest in the portfolio of renewable energy generation assets. They also appreciate that we are in Central America and the Caribbean, with geographic and technological diversification.

We are present in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and the Dominican Republic, and we operate a diversified matrix of hydroelectric, solar and wind technologies.

This portfolio of renewable technology assets includes energy agreements with counterparties throughout the region and ensures flows for the long term.

The average duration of power agreements is between 13 and 14 years, and the financial structure between the bond and the syndicated loan is eight years; there is sufficient financial slack to meet these obligations.

What was the objective of this operation?

To refinance the original financial structures of these assets, which were developed at different moments in time, each with its own project financing structure.

These financing structures were critical at the time to execute the projects; when the assets are in operation, projects become a bit restrictive in financial and operating conditions.

So, this refinancing allows us to make financial conditions more flexible and optimal, and frees up cash flow, which will allow us to continue growing investments in the region, while optimizing the operating model to continue creating efficiencies in management processes.

Since when was this participation being considered?

We had been preparing for this bond issue for a long time, convinced that CMI was ready to access international markets; now that we have all the renewable energy generation assets in operation, it was the right time to come out.

It took us many years to complete the execution, but we are ready to start refinancing; the best option we saw was to combine bond issues in the international market and syndicated loans to make the most efficient use of capital.

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CMI's operation was carried out in New York, the United States, the top international financial hub. (Free Press Photo: Courtesy)

Was the issue public or private?

The issue was public.

How will the resources be allocated?

The bond resources and the syndicated loan will be used to pay our commitments with financial institutions that had granted us the development loans for the projects.

That is, they are earmarked for refinancing, which gives us a better financial position, with significant savings in financial costs. It also means released cash flow due to the bond structure, which allows us to have resources to continue investing and expanding the business footprint of renewable energy assets.

For each asset in each country, these resources will be used to repay original financial structures.

How do you view the drive for this type of investment in each country?

Central America and the Caribbean are already driven to invest in renewable energy, but, in general, we have encountered very attractive destinations.

For example, in Guatemala, El Salvador and Honduras, in the Northern Triangle of Central America, there are clear incentives to invest in renewable energy, as in the Dominican Republic, where there are government regulations that promote investment in renewable energy. The energy matrix of the DR is still very predominantly fossil fuels, and there is a lot of room to invest in renewables.

In general, the region promotes investment in renewable energy, and we need to remember that we are not producers of fossil fuels, but we do have renewable resources such as wind, sun and water that we can use responsibly to generate energy and enjoy energy independence.

Why do you foresee an immediate return on the transaction?

The eight-year term was agreed in consensus with the banks that helped us in the transaction, because we wanted the bond structure to be attractive to large investors who trusted us.

It seemed to us that the eight-year term fits well with the terms of the energy purchase agreements that we have in place, and it makes a lot of sense for the maturation structure of the flows. So, it is an attractive term for CMI, but it also made the bond very attractive for international markets.

In your view, how does Guatemala look with this operation?

These are very positive news for Guatemala and for the entire region.

It seems to me that this is a very clear message not only for CMI, but also for Guatemala, Central America and the Caribbean, that there is great appetite in international markets to invest in renewable energy options in the region.

There is sound confidence that the region has huge development possibilities and possibilities of creating more favorable conditions for the economies of the countries.

This investment made in renewable energy in Central America and the Caribbean is a virtuous circle of opportunities, and for the creation of jobs, but also seeks to make the cost of energy more efficient for the countries.

To the extent that there is less dependence on imported fossil fuel sources, countries become energy independent, and energy prices and industry become competitive.

The common citizen also benefits from more efficient energy supplies and lower prices, which gives them greater purchasing power.

This type of investment has the backing of the international financial community. There is healthy appetite to invest in the region and trust on the part of companies and business conglomerates such as CMI, that yearn to do things right and manage business responsibly.

What other big companies from the region could join in the future in the issue of these green bonds? 

As a Guatemalan and Central American capital company, CMI Energy is making inroads, and this somehow points to a very clear path for companies in the region that have done things right, like CMI, to gain access to international markets.

There are very responsible and good companies in the region that, without a question, will continue the path that we are now opening in the area of energy and in other segments of the economy.

Central American business groups would do well in taking this path that, without a question, will take them to the next level.

The next level is gaining access to capital, to long term resources at reasonable cost and financial flexibility conditions which would otherwise not be attainable.

Source: Prensa Libre