Chile’s capital markets have shown less activity in recent years than in the past, but even then, law firm Carey has managed to stay busy by advising a number of landmark deals in the country.
The winner of Latin Finance’s Law Firm of the Year in Chile category helped clients such as Codelco, Aguas Pacifico, Banco del Estado and BCI to sort out the legal subtleties of their money raising efforts. It also helped worthy deals such as two project finance structures to purchase electric buses in the Santiago area, operations that counted with the participation of multilateral players such as IDB Invest and the IFC.
The names involved in the most remarkable deals advised by Carey reflect the reality of capital markets in Chile today.
“The Chilean market remains far from its pre-pandemic levels. We are currently seeing more companies leaving capital markets than getting in, which is of course worrying,” says Pablo Iacobelli the managing partner at Carey in Santiago.
The lacklustre performance of the domestic market is the result not only of the after-effects of the Covid-19 pandemic, but also by uncertainties generated by a series of failed attempts by the government and the opposition to change the Constitution and the country’s much-vaulted pension system.
Adding to the political instability, the Chilean Central Bank kept interest rates high for a long time, although they are coming down at the moment. All things combined, the uncertainty has slashed the risk taking ability of key institutional investors such as Chile’s pension fund managers, better known as AFPs.
Consequently, small and mid-sized companies face few opportunities to raise money in local capital markets, and the largest firms are mostly looking abroad to meet their funding needs.
“Corporations with a history of international placements and which are more used to those markets prefer to go to New York for example,” Iacobelli points out.
Domestically, the most noticeable development has been the appearance of a few innovative securitization deals designed to meet slivers of demand from mid-sized firms, especially those with urgent funding needs.
“There is some appetite for that kind of security, which pay higher rates, but volumes are not huge,” Iacobelli says.
Equity markets, in particular, remain very subdued, and there are few signs that the situation will improve in the near term. The exception is the M&A activity in sectors such as mining, telecoms and energy, which have seen plenty of deals taking place in recent years.
“We have seen some green shoots in capital markets, and the government seems concerned about what it can do to reactivate them, but so far we have only seen some timid little reform ideas here and there,” Iacobelli concludes.