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CORES floats bond possibilities as redemption looms
March 7, 2013 / 3:37 PM / 5 years ago

CORES floats bond possibilities as redemption looms

* Spain’s oil and gas agency eyes potential market return

* Fitch shifts CORES’ aggregate rating to investment grade

* A fifth of outstanding debt approaches maturity

By John Geddie

LONDON, March 7 (IFR) - CORES, the agency which maintains and controls Spain’s strategic reserves of oil and gas, may become the country’s fourth public sector entity to tap public bond markets this year, with a sizable redemption fast approaching.

Corporacion de Reservas Estrategicas de Productos Petroliferos (CORES), rated Ba1/BBB-, was assigned a third BBB rating by Fitch on Tuesday, giving it an aggregate investment-grade rating despite its junk status from Moody‘s.

This ratings boost has fuelled speculation that the entity will make its first appearance in markets since 2008, in order to refinance a EUR350m bond coming up to maturity on July 15.

“The additional rating from Fitch opens up new refinancing possibilities for CORES, but at present no decision has been announced,” said Tana García Lastra, Development and Institutional Relations Director at CORES.

Fitch’s rating is based on the entity’s strong control from central government, strategic importance and ability to increase its revenue at any time so that it covers its operating cost, the ratings agency said in an emailed statement on Tuesday

The bond due to mature in July equates to nearly 20% of its EUR1.8bn debt.

PROMISING TIMING

Spanish public sector issuers have enjoyed a purple patch in bond markets this year, after an alarming widening in yields that shut them out for most of 2012.

Their return to form has been spearheaded by the sovereign which sold a new EUR7bn 5.4% 10-year bond via syndication at the start of January, marking one of the largest single-tranche bond sales since the onset of the eurozone crisis.

Government-guaranteed entities Instituto Credito Oficial (ICO) and FADE, the Electricity Deficit Amortisation fund, both rated Baa3/BBB-/BBB, have also made significant inroads into their funding needs for 2013. In doing so, they have been able to capture the compression in their bond spreads relative to the sovereign.

STRONG PRECEDENT

While an issue from CORES may not be quite so straightforward given its partial junk status, unfamiliarity and indirect government support, other similar entities around Europe have had notable success in the markets this year.

Sagess, which manages France’s oil reserves, issued a twice-subscribed EUR600m 2.625% 12yr offering at a 23bp premium to its government last month. The Austrian equivalent, Erdoel-Lagergesellschaft (ELG), is currently on the road in Europe, and expected to make a capital markets debut in the coming weeks. And finally, Belgium’s comparable Apetra is also toying with the idea of returning to bond markets later this year, after it placed its debut EUR300m 2.125% eight-year bond in late 2012.

CORES’ hopes of a return will have been strengthened by some relatively recent investor work. BBVA and Credit Agricole were mandated for a roadshow last June, although a transaction did not immediately emerge.

The issuer’s last bond deal came back in April 2008. The then Triple-A rated entity raised EUR500m through a 4.5% April 2018 deal. BBVA, SG CIB and UniCredit priced the bonds at mid-swaps plus 18bp on the strength of around EUR900m of demand from 45 investors, the bulk of that coming from French accounts. (Reporting by John Geddie,; editing by Julian Baker)

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