EM LATAM CREDIT: Peru's Alicorp SA, Potential New Issue Fair Value

(Source: Market Sources)
(ALIPE; Ba1/BBB-/BBB)

IPTs 5.75WAL, 7Y Final:: N/A
FV: 5.75WAL, 7Y Final: 7.50% Area Dual Currency
T+160bps Area USD Denominated

• Peru consumer products company Alicorp proposed a new issue of either USD or dual currency denominated, benchmark size senior unsecured amortizing 5.75 year weighted average life ( WAL), 7 year final notes. Use of proceeds will be used to refinance existing debt including 2027 notes and bank loans.

• A comparable credit could be Chile based beverage producer Compania Cervecerias (CCUCI; -/BBBneg/BBB+) with USD 2032 bullet notes quoted T+135bps. We think ALIPE should trade at a wider spread given its lower ratings and also because the company is based in Peru while CCU is based in higher rated Chile (CHILE; A2/A/A-).

• For the potential dual currency structure we observe 6-year PEN denominated local debt at 5.23% then add 160 bps to get 6.83%. We need to add extra yield to allow for the illiquidity of an amortizing and dual currency structure.

• We see the ALIPE 6.875% 2027 dual currency notes quoted at a price of 100.9 (source:Bloomberg) which is 230 bps over the Peru local govt Aug 2026 bond. Using 230 bps as a credit spread, assuming a flat credit curve, would give us 7.5% area for the new ALIPE dual currency bond.

• We think ALIPE should trade tighter than lower rated Uruguay based Latin American restauranteur Arcos Dorados (ARCO; Ba1/BBB-) with January 2032 notes at T+186bps. Other consumer products company comps we considered were Mexico’s Bimbo and Gruma as well as Colombia’s Nutresa.

• Bimbo and Gruma have a much larger global geographic presence, so we see ALIPE trading wide to those names while we see bonds of Colombia based Nutresa as being more heavily influenced by its Colombia presence and are quoted much wider as a result.

• We also consider that about 27% of Alicorps revenues were in weakly rated Bolivia and Ecuador. Overall, Alicorp has a reasonably leveraged balance sheet with net debt/EBITDA at about 2x and has a very well diversified product portfolio.