EM LATAM CREDIT: Compañía General de Combustibles (CGC): New 5NC2 Fair Value

(NR/CCC+pos/NR)

IPTs: 12% Area FV: 10.75% Area

• Argentina independent oil and gas E&P company CGC proposed issuing USD benchmark-sized, 144a/Reg S, senior unsecured 5NC2 notes. The use of proceeds will be to refinance short term debt. We estimate a FV of 11% based on CGC’s high leverage, refinancing risk and valuation relative to other smaller scale independent oil and gas producers in the region.
• Colombia independent oil and gas E&P company Sierracol (SIERRA; NR/NR/B+) issued two weeks ago 5NC2-Year notes at 9.25% which were last quoted 9.37%. CGC has a similar production scale to SIERRA with oil and gas production of about 55,000 BOE/d as compared to SIERRA at about 45,000 BOE/d, according to Fitch and S&P, both of which are relatively small compared to other regional oil and gas producers; however, CGC has much higher leverage, more shorter term refinancing risks and integration risks with newly acquired assets so fair value will be at a higher yield for the new notes.
• CGC has relatively high leverage above 4x, though S&P expects that number to come down with recent cost cutting efforts and an increase in production, compared to below 2x for SIERRA. On the positive side, CGC’s recent acquisition of Vaca Muerta assets adds to its oil production capability and diversifies from more gas focused production. CGC also has a stake in more stable cash flow natural gas distribution through its part ownership in TGN.
• Another Colombia small scale independent oil and gas producer Geopark (GEOPAR; NR/B+/B+) has 2030 notes quoted at a yield of 10.1%. S&P projected production of 27,000 BOE/d for 2025 and 2026 but moving up to about 40,000 BOE/d from recently acquired Vaca Muerta assets. GEOPAR has relatively low leverage, below 2x according to S&P, and also hedges their oil production, which produces a more stable cashflow profile so we would view CGC as trading at a higher yield than GEOPAR.