DoubleLine Stays With Coke-Chasing Bottler Bred in Guerrilla War

(Bloomberg) -- When Maoist guerrilla group Shining Path chased Coke and Pepsi from the Peruvian highlands three decades ago, Ajecorp BV stepped into the void. The mom-and-pop soda maker expanded from a backyard bottler to an international force with a presence in more than 20 nations.

But stretching from Caracas to Bangkok proved too much, and almost led to the pop-maker's complete downfall.

The 2015 collapse in many of the emerging-market currencies from which the company derives its revenue sent Ajecorp's debt securities spiraling to as low as 31.86 cents on the dollar by February 2016. Those who stuck around were rewarded this past month, when the notes soared back to more than 87 cents.

That includes funds managed by Jeffrey Gundlach's DoubleLine Capital, three of which comprise the largest holder of Ajecorp bonds as of March 31, data compiled by Bloomberg show. DoubleLine portfolio manager Luz Padilla declined to comment on the debt.

Divestitures are one reason for the turnaround. The company is unloading unprofitable operations in Thailand, Indonesia, Mexico, Brazil and Venezuela, a move that will help stabilize its liquidity position, according to Johnny Da Silva, a New York-based analyst at Fitch Ratings Ltd, which revised Ajecorp's outlook to stable from negative.

“The company acknowledged where they're strong and they want to keep focusing on their core businesses and countries,” he said. “We see a more comfortable credit now.”

From humble beginnings selling homemade cola in Ayacucho, the five siblings of the Ananos family have grown parent company Aje Group into Latin America's fourth-largest soft drinks company. It ranked 16th globally last year in off-trade volume sales within the industry, according to market researcher Euromonitor, as consumers from Indonesia to Egypt guzzled everything from Sporade, a Gatorade equivalent, to energy drink VOLT.

Ajecorp's cost-saving measures will likely drive neutral or slightly positive free cash flow generation and support further appreciation in the soda maker's bonds, Eriko Miyazaki-Ross, senior vice president at Imperial Capital wrote in a note on Friday. The company reported last week a 12 percent increase in earnings before interest, taxes, depreciation and amortization for continuing operations in 2016 versus the previous year.

A 5 percent rally in developing-nation currencies this year and a scarcity of high-yielding credits also helped boost the bonds. While the yield on Ajecorp's 2022 notes fell to 9.8 percent, that remains one of the more alluring options for emerging-market traders willing to ride the volatility that comes with it.

“They've stopped the bleeding with their Asian portfolio and immunized their currency mismatch,” said Michael Roche, a fixed-income strategist at Seaport Global Holdings LLC, who recommends buying Ajecorp's bonds. “It looks like a happy ending.”

To contact the reporter on this story: Ben Bartenstein in Lima at bbartenstei3@bloomberg.net.

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Christiana Sciaudone, Brendan Walsh