Colombia corporates eye more shares, less bonds.

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Fuente: Reuters.

Colombia's corporate financing focus is changing -- companies are expected to raise more funds this year from shares than bonds as the nation's central bank raises interest rates and therefore the cost of issuing paper.

The Andean country's financial institutions had taken advantage of historically low interest rates since late 2008 to issue bonds cheaper, but the central bank's gradual tightening of monetary policy since February will change that.

Analysts expect local bond issuances by the corporate sector to fall to around $4.5 billion in 2011 versus $7.55 billion last year while share sales will soar to $10 billion this year compared with $287 million in 2010.

"We've seen a deepening of capital markets, more and more companies are going out to finance themselves with share issuances rather than credits or bonds," said Cesar Cuervo, an analyst with the brokerage Correval.

Higher costs for issuing bonds since the monetary authority began raising its benchmark interest rate in February -- it has increased to 3.75 percent from 3 percent -- coupled with global risk aversion have driven a change in corporate financing.

Corporate bond issues in 2011 have fallen by half to $1.1 billion so far this year versus last year as the central bank begins withdrawing the monetary stimulus that helped the nation grow after fallout from the global financial crisis.

"There hasn't been a very good start. That denotes the absence of demand by investors who see little interest in such securities in an environment of rising rates," said Francisco Chaves, a fixed income expert at Corredores Asociados.

"There's also what's happening internationally, the stress that there is in Europe and the United States makes it so that it's not well seen to think about investing long-term."

Instead, share issuances are emerging as the best financing source for companies which in the last few years have lost their fear of opening up to new investors, despite Colombia's stock exchange falling 8.3 percent so far this year.

"The real sector has realized that this is a good market for funding, which brings benefits to the company in terms of value creation and expansion of its investor base," said Juan Nicolas Pardo, head of equity analysis at Valores Bancolombia.

"In addition shares do not expire, that allows one in some way to manage the debt profile."

Companies such as Grupo Aval GAAp.CN and AviancaTaca AVTp.CN have issued shares so far this year totalling $1.42 billion -- compare that to the $287 million for all of 2010 -- and state oil company Ecopetrol (ECO.CN) is expected to issue more shares later this year.

Strong economic growth prospects -- with expansion seen above 5 percent this year versus 4.3 percent in 2010 -- as well as expectations Colombia will get a second investment grade credit rating in 2011 have also fed the appetite for shares.

Additional demand is seen coming from the integration of the stock exchanges in Colombia, Chile and Peru.

Experts say that Banco Davivienda, textile manufacturer Coltejer, pension fund Protección and food giant Nutresa are also lining up to issue shares this year.

"There are good prospects, people want shares, there is liquidity for the shares. I feel that the real sector is very encouraged by recent successful experiences," Pardo said