Category: Chile

Chile’s quasi sovereign companies Codelco and ENAP will have no problems in meeting their short term debt maturities, say Fitch analysts. “I would expect that in the next 12 moths [Codelco’s] financing needs will be matched through a combination of bilaterals and local market financing,” says Fitch’s Daniel Kastholm, adding the question is not whether it will be able to meet those needs, but at what cost it is willing to do so. Both Codelco and ENAP have demonstrated an ability to squeeze lenders for the tightest possible pricing, while Chilean local markets have on multiple occasions this year, absorbed sizable debt offerings at relatively affordable costs to issuers. Codelco’s forward 12-month debt maturities as of March 2009 stood at $1.4bn, according to Fitch. The company also has some $800m in cash on hand. Earlier this year, Codelco entertained offers from banks for some $400m in 3-year funds. Eager lenders pitched aggressively, pushing the price discussions to levels in the low 200bp over Libor area, say bank syndicators. And ENAP said last week that it clinched $300m in bilateral-like loans from Santander, BNP Paribas and HSBC. The all-in cost to the issuer stands in the 200bp over Libor area, according to bankers off the deal. Codelco would command a tighter spread than ENAP, which suggests it could easily raise 3-year funds at below 200bp over Libor. Codelco has also filed a local bond shelf, rated AAA by Fitch, though size and timing of the program have not been disclosed.

Chilean power generation company Colbun has raised CLP10.5bn ($20m) by tapping a $95m commercial paper program. The 6-month deal came at the local benchmark rate TAB minus 4.6bp, which equals 0.744% per month, using the local market nomenclature. Colbun will draw another $20m or so from the same line in July, say executives on the deal. The transaction was led by Itau Chile Corredor de Bolsa, the local broker dealer arm of Brazil’s Banco Itau.

Chile-based Prudential subsidiary PLA Chile is offering to acquire almost 91.3m in new shares of Paz Corp., a real estate developer, for CLP200 per share, or about CLP18.3bn, according to a filing with the Chilean securities commissioner. As part of the deal, Paz’s shareholders must approve a capital increase equal to the amount to be sold to PLA. The buyer will have an 18% stake in Paz and Paz would retain a 42% stake after the deal closes. They currently hold 59.2%. A Prudential spokeswoman did not disclose any additional information and Paz did not return calls for comment.

Chilean energy company ENAP has raised 3 bilateral loans totaling $300m from BNP Paribas, Santander and HSBC. The 3-year facilities, whose proceeds are being used to pay down maturing debt, are estimated to have come at an all-in cost to the company of around 213bp over Libor, say bank market officials. An ENAP spokeswoman says that figure is incorrect, but she declines to provide the actual number. If the pricing is at all in the ballpark, it would mark a recent low for 3-year money in the region. A banker whose shop was eyeing the process characterizes the pricing as “ridiculous,” because it was so tight. ENAP apparently employed a savvy borrower technique of pitting financial institutions against each other to whittle down pricing. In some cases, it took pitches from different internal lending groups at the same institution in order to source the lowest possible spread, say bankers. Some banks run bilateral lending and syndicated lending from different groups with separate returns targets. S&P this week cut Enap to BBB (stable) from A, noting the company’s high leverage and weak liquidity position. It also highlights the fact that the company has to import all of its crude oil and is exposed to commodity price volatility, as well as unstable refining margins, and increasing diesel imports to replace Argentine natural gas. Enap supplies about 80% of local market oil needs.

Chilean retailer Ripley is set to conclude today meetings with investors to support the sale of up to UF3.5m in domestic inflation-linked bonds. The AA minus/A+ issuer has been presenting since Tuesday for the sale expected to price June 25. Ripley will place a combination of 6% 2016 peso-denominated notes featuring a 3-year grace period, 4% 2016 UF-denominated notes with a 3-year grace period and 5% 2030 notes with 10-years’ grace. Proceeds will repay debt. IM Trust is managing the sale.

Chile is considered the most friendly to private equity and venture capital in LatAm and the Caribbean, an honor it has held for 4 consecutive years, according to the latest study by the Latin American Venture Capital Association (Lavca). However, Chile’s score of 76 out of 100 reflects a 2-notch drop compared to 2008’s scorecard, while Colombia jumps 4 notches to 57, showing the most improvement. Peru rose 1 notch to 50 and Brazil, which is in second place after Chile, saw no change to its score of 75. Besides Chile, Uruguay, Panama and Trinidad & Tobago also showed modest declines of 2 points. Lavca says the reduction reflects the global slowdown’s impact on local capital markets. The countries with the most pronounced fall, of 4 points or more, are Argentina, El Salvador, and the Dominican Republic. Some of the factors the Lavca scorecard considers are laws on PE/VC fund formation and operation, tax treatment of funds and protection of minority shareholder rights.

S&P has cut Enap to BBB (stable) from A and removed it from credit watch negative. The agency cites the Chilean oil refining company’s high leverage and weak liquidity position as reasons for the reduction. It also reflects the company’s exposure to business challenges, including the need to import all of its crude oil, commodity price volatility, unstable refining margins, and increasing diesel imports to replace Argentine natural gas, all of which have affected operating performance. Enap supplies about 80% of local market oil needs.

Chile’s central bank cut its monetary policy rate by 50bp to 0.75%. The easing is in line with Goldman Sachs’ forecast, although the shop also said there was a possibility of a 25bp cut. RBC Capital Markets expected a 25bp reduction, as did Bank of America-Merrill Lynch and Barclays. The central bank expects to continue cutting rates to bring inflation down to 3.0%. It stands at 4.4%.

Facing an increased fiscal deficit outlook, Chile plans to sell $1.7bn worth of sovereign debt on the domestic market, and withdraw $4.0bn from its FEES sovereign fund, the finance ministry says. The $1.7bn issue will include 5-year peso-denominated bonds and 5 and 10-year UF-denominated bonds. Chile also took out $4bn in January to finance a fiscal stimulus package, and will change it into CLP at the rate of $40m per day beginning July 1. In addition, central bank will make room for the sovereign bond issues by suspending some of its own bond program and buying back 5 and 10-year central bank notes for up to $1 billion. Chile’s government faces a deficit of 4.1% of GDP, compared to 2.9% estimate in January.

Chile’s central bank is seen cutting 25bp to 1.00% today, according to market consensus. Bank of America-Merrill Lynch forecasts a 25bp easing and sees no more cuts for the rest of the year. Barclays, whose estimate is also in line with consensus, says that downside risks to the forecast, come more from inflation than from economic activity, as food and fuel prices have contributed to drops in inflation. According to the central bank, in May, monthly inflation was down 0.3%. Annual inflation stands at 3.0%.