From palm oil to milk and male calves, Colombian dealmakers are breaking new ground when it comes to securitizing agricultural commodities.

Locked in a two-man race to become the first palm-oil backed deal in Colombia, Titupalma appears to be pulling ahead. The Ps50 billion (US$18.2 million) securitization has been rated AA+ by BRC Investor Services and, following some minor tweaking, will be good to go. A similar deal structured by Colombian bank Commodities & Banca de Inversion is taking longer and has yet to receive a rating (see ASR 10/7, p. 21).

Trade group Promotora de Proyectos Agroindustriales de Palma de Aceite (Propalma) has designed the transaction and originated the underlying assets, which are future palm oil sales secured through forward contracts. Proceeds are earmarked for planting up to 10,000 hectares of additional trees.

The bond carries a 10-year maturity and will be priced off consumer price inflation. It begins amortizing in the sixth year. Bolstering the deal's security is the fact that no producer contributing to the asset pool can devote more than 40% of production to the trust, while no single producer can account for more than 10% of the securitized palm oil.

While Colombia is the largest palm oil producer in the region, its 524,000 tons of production in 2001 paled in comparison to the output of Malaysia and Indonesia, the commodity's true market movers. In addition to their negligible global market share, Colombian growers face homegrown risks like a sluggish economy.

While CBI's palm-oil deal might cross the finish line second, the bank is pulling together a securitization of other agricultural commodities: milk and male calves. With cattle ranchers providing the assets, that transaction should hit Ps16 billion (US$5.8 million), nearly twice the Ps8.5 billion (US$3.1 million) securitization of milk and male calves issued in July. That deal, called Cria Leche, priced at 8% over CPI.

"We're hoping to come out with this at the end of November," said Viviana Andrea Moreno, project manager at CBI. Buyers, she added, will largely consist of high net-worth individuals and pension funds. Securitizations considered exotic in other Latin American countries are old hat for the Colombians.

The second cow deal will resemble the one that closed in July, with a five-year tenor. It will include a reserve fund equal to 9% of the placement. Collateral is expected to initially equal 20% of the placement.

Should conditions indicate trouble in generating flows from the sale of milk and male calves, the trust is authorized to sell female calves.

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