Flash Grupo Aval - Share issuance (finally) announced
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October 31, 2013 (www.investorideas.com newswire) The BoD announced its intention to raise up to COP 2.4 tn (approx. USD 1.3 bn) in equity, targeting the local market. In order to do so, the BoD authorized the company's management to advance on the requirements needed to launch such issuance, including approvals by social bodies and regulatory requirements.
As mentioned in our previous equity research notes, the dilution risk of Grupo Aval was not negligible. This announcement confirmed our view that the conglomerate needed fresh capital to support its recent and future M&A activity. YTD Grupo Aval has acquired AFP Horizonte, Grupo Reformador (Guatemala) and BBVA Panama for a total amount of approx. USD 1.7 bn. Thus, this announcement is a negative for Aval's shares. Further, given the high trading and forward multiples of PFAVAL today, the primary market could demand a considerable discount.
However, from a credit standpoint, these are good news for bondholders, as it gives fresh air to the conglomerate's balance sheet. According to our analysis, the recent M&A activity was constraining severely Grupo Aval's unconsolidated cash position. This issuance then will improve the conglomerate's financial health, and lowers the likelihood of further debt offer.
Concluding, after this announcement we are cautious on Grupo Aval's preferred share, but we favor corporate debt.
Published at the Investorideas.com Newswire - Big ideas for Global Investors
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