Category: Chile

Chile’s central bank opted to keep interest rates unchanged 8.25% Thursday. The decision to keep the TPM at its current rate was widely expected by economists. In a statement accompanying the decision, the central bank indicated it would lower rates in 2009, though it will keep an eye on inflation as it does so.

Moody’s has announced that it has cut the foreign currency rating of Chile’s Empresa Nacional del Petroleo to A3 from A2, citing the company’s weakened profitability levels and high leverage compared to its peers. Enap’s debt-to-Ebitda increased to more than 15x over the 12 months to September 20, Moody’s says. The outlook is stable as Moody’s expects the company’s financial performance to improve over the near to medium term as a result of its investment initiatives, the expectation of reduced diesel demand from recent record levels and reduced working capital needs.

The global crisis is toppling LatAm economies like dominoes, and cracks are starting to widen in Chile, the region’s highest rated large economy. The country is reeling from a copper price plunge, and talk that it was discussing a contingent credit line with the IMF has raised further worries. Kasper Bartholdy, head of EM fixed income research at Credit Suisse, singles out Chile as an EM country with very large funding needs that trades at very tight spreads. And the private sector may also be storing up pain. “Chilean corporates have more short term debt than liquidity and it’s the only country in Latin America where you see that,” says Anne Milne, head of Deutsche Bank’s LatAm corporate bond research group. “The government has come out and said that they will make sure financing is available to any company, if it’s just a liquidity issue, but then again it’s a little bit surprising for Latin America’s strongest economy,” adds the analyst. However, Milne also notes that she does not expect problems in Chile. They were speaking at an EMTA event in New York last week. Separately, BCP Securities notes that Chile has one of the most impressive macroeconomic management teams in EM, as well as more than $80bn in international resources to meet its external obligations. However, the shop predicts that the current account deficit will to rise well beyond 2% of GDP in 2008, and could approach a shortfall of 5% of GDP in 2009, meaning a reduction in demand to stabilize external accounts. Moody’s last month put Chile’s A2 rating on review for upgrade, saying it is well positioned to manage upcoming challenges.

A $989m 17.5-year project loan for AES Gener’s Angamos mining project in northern Chile will see its first disbursement this Friday, say people close to the process. Lenders are understood to be invoking a market disruption clause that will shift the reference rate up from Libor to a yet undetermined and undisclosed level to reflect the cost of lending. Stringent liquidity conditions have raised banks’ costs of obtaining funding to something well over Libor, leading them to demand that borrowers compensate for this temporary spike. In the case of Angamos, at least 33% of the syndicate must invoke a market disruption clause for the reference rate to be renegotiated. Lenders then submit their cost of funds to the admin agents, which calculate an average funding cost, based on the submissions, excluding the highest and lowest figures. The average is then shown to the company, which presumably agrees to the new reference rate based on the calculations, which are kept secret from the rest of the syndicate and the market as a whole. The project loan is made up of 3 tranches: a $675m tranche backed by KEIC, the Korean export credit agency, pays Libor plus 150bp while the commercial and LC tranches – which total $314m – pay Libor plus 205bp-275bp. BNP Paribas and RBS led the transaction, with Calyon, SMBC, Deka, DZ HSBC and Fortis taking MLA tickets.

S&P has cut its corporate credit rating on Chilean sugar producer Empresas Iansa to BB minus from BB+ and removed the rating from credit watch, where it was placed with negative implications on November 20. “The downgrade reflects the deterioration in the company’s financial profile as a result of weakening conditions in its core sugar business and increased working capital requirements in its juice business. These factors led Iansa to increase its financial debt to $196m as of September 30, 2008, from $109m one year earlier, causing its liquidity position and credit metrics to weaken significantly,” says S&P. “We expect the fundamentals of the sugar business to remain vulnerable for the next two years, which will put significant pressure on Iansa’s financial profile,” adds the agency. For the 12 months to September, debt-to-total capital and debt-to-Ebitda jumped to 34.6% and 12.4x, respectively, versus 21.0% and 3.1x, as of December. “We expect some improvement in these metrics for 2009 and 2010, with total debt-to-total capital close to 30% and debt-to-Ebitda ranging from 4x to 5x,” adds S&P.

Xstrata says the El Morro copper project in Chile may require a $2.5bn investment to take it to production. It also says the mine will have a life of 14 years plus 2-3 years for the construction phase and 5 years for the period of mine closure. Xstrata says El Morro has estimated mineral reserves of 450m tons with an ore grade of 0.58% copper. Xstrata Copper has a 70% stake in Minera El Morro, which owns the project. Vancouver-based New Gold owns the remaining 30%. The mine is still in the permitting phase.

Chile-based Sociedad de Inversiones Pampa Calichera is looking to move $494m in debt to controlling holding companies, says S&P, which as affirmed its BB- corporate credit rating and taken it off credit watch negative. Pampa has also solicited the consent from holders of its $250m bonds to upstream cash to controlling companies in order to service the debt. Pampa is requesting that bondholders allow an increase in its dividend payout to 90% of cash flow and permit the distribution of an extraordinary dividend of $48m, adds S&P. It is also proposing to increase both the collateral securing payment of the bonds to 3x from 2x,and the reserve account to two from one coupon. Inversiones SQ, the ultimate controlling company in Pampa’s parent structure, says that if consent is granted, it would reduce Pampa’s controlling companies’ debt up to $170m during 2009. “The structural enhancements and the reduction of debt would balance the proposed changes at the BB- rating level, even if Pampa’s ability to build up cash would become somewhat diminished as a result,” says S&P. The agency also expects the company’s ultimate source of cash, Sociedad Quimica y Minera de Chile to align its dividend policy with Pampa’s controlling group’s need for cash.

Underpinning firm sentiment on the fundamentals of the main LatAm economies, Moody’s has placed Chile’s A2 foreign-currency rating on review for possible upgrade and has assigned a positive outlook to the A1 local-currency ratings. “Relative to other sovereigns rated by Moody’s, the Chilean government appears better positioned to manage upcoming challenges,” said Moody’s vice president and senior credit officer Mauro Leos. He adds that Chile is well prepared to limit its susceptibility to financial risks and macroeconomic volatility, as it has a strong banking system and a robust balance sheet. “We will evaluate the extent to which increased foreign asset accumulation by the government has shored up Chile’s resilience to adverse external shocks and increased the government’s ability to deal with future fiscal contingencies, including those that could emanate from the external and the financial sectors,” says Leos. The review aims to determine whether Chile’s sovereign credit profile might be better positioned at a higher rating in order to reflect underlying strengths relative to similarly rated sovereigns that might not be as resilient to the global financial turmoil.

Japan’s Marubeni and Chile’s Antofagasta are moving ahead with plans to assemble financing for a $2bn mining project in northern Chile. They are heard to have chosen to work directly with Japan’s three largest lenders – Bank of Tokyo Mitsubishi, Sumitomo Mitsui and Mizuho – to assemble the financing. The lead duo – partners in a mining project called La Esperanza – have hired Rothschild as lead advisor. People familiar with the process say as much as half of the project could be financed with equity, while the remaining debt portion would be raised with credit agencies and multilaterals on one side, and commercial banks on the other. The commercial tranche, which would be syndicated among international banks, would likely not top $500m, given today’s hostile bank market conditions. Yen loans from the lead lenders are also heard being considered. Timing for launch is still a ways off – it would not happen before the end of Q1, and possibly as late as the first half. In April, Marubeni bought 30% stakes in two of Antofagasta’s projects – Minera Esperanza and Minera el Tesoro. The new financing is directed at the former.

Shareholders of Chilean power generator AES Gener have approved plans for a share offering of up to CLP153.56bn ($239m). As many as 945m units will be priced at CLP162.50 each, with existing shareholders having preferred rights. Timing is not specified. Proceeds will be used to finance investment in projects under its investment plan. AES Gener plans to raise installed capacity to 5,000MW by 2011, from 3,600. Earlier this month, majority shareholder Inversiones Cachagua raised $175m from the sale of a 9.55% stake in AES Gener through a secondary sale to raise funds to participate in the new offer. Celfin is managing the transaction.