Category: Chile

While economists predict Chile is likely to cut its monetary policy rate by as much as 75bp tomorrow, Peru is expected to keep rates unchanged. JPMorgan forecasts that in Peru, rates will stay at 6.50% as inflation remains high at 6.65%, down only slightly from its November peak of 6.75%. BBVA says the same, adding that “credit to the private sector continues expanding by more than 30% year over year.” Regarding Chile, where the rate is 8.25%, local firm Inversiones Security forecasts the central bank will cut by 25bp to 50bp, as CPI dropped 1.2%, while the consensus was for a 0.6% fall. Barclays and JPMorgan expect Chile’s central bank to be more aggressive and loosen by 75bp.

Chile plans to spend $4bn to boost its economy and may sell international debt for the first time since 2003 to help fund the stimulus. The sovereign plans to increase spending this year by about 1% of GDP and cut taxes by the same amount, it says, as well as inject $1bn into state-owned copper producer Codelco. To pay for the package, Chile would need to suspend fiscal guidelines introduced in 2000 that force governments to aim for a budget surplus, and is expected to temporarily cut the surplus target to 0.0% from 0.5% of GDP. The government expects the measures will allow the economy to grow 2%-3% this year. Finance minister Andres Velasco was quoted in local and wire reports Tuesday saying the government may offer both domestic and foreign bonds to help finance the plan. “The measures proposed by the authorities appear well focused and if properly executed could help bolster Chile’s economy against global recession, falling commodity prices and tighter external liquidity conditions,” says Casey Reckman, associate director at Fitch. “Although the government anticipates a deficit of 2.9% of GDP in 2009, Fitch does not expect Chile’s fiscal and external solvency indicators to deteriorate significantly as the stimulus plan will be financed primarily with resources from the $19.1bn economic and social stabilization fund,” she adds. President Bachelet says that the package, which is equivalent to 2.8 percentage points of GDP, aims to keep growth above 2.0%. Morgan Stanley forecasts growth of just 1.5% in 2009, while Merrill Lynch says it will expand by 2.3%.

US-based printer RR Donnelley & Sons has acquired the assets of PROSA, a Chilean web printing company located in Santiago, from Copesa for $23.5m in cash. The buyer says the deal complements an existing facility in Santiago. PROSA produces magazines, catalogs, retail inserts and soft-cover textbooks. With the addition of PROSA, RR Donnelley will have 15 facilities in LatAm and the Caribbean, including Argentina, Brazil, Chile, Mexico and Venezuela.

The refinery unit of Chile’s state-controlled energy company Enap has raised $750m through a rights offering that concluded December 24. Enap faces some $800m in short-term debt maturities this year, and told stock market regulators last week that 2008 losses are expected to total more than $550m. The oil and gas utility has been heard sounding out bankers for a 10-year international bond issue of up to $500m. But last week, Chilean newspaper El Mercurio reported Enap aims to issue a $300m-$500m bond in the domestic market, citing unnamed government sources. Local bankers say such a deal would make sense given the December success of Endesa, which highlights captive strong domestic demand. Moody’s last month chopped Enap to A3 from A2, citing weakened profitability and high leverage compared to peers. Debt-to-Ebitda rose to more than 15x over the 12 months to September 20, Moody’s says. The outlook is stable as Moody’s expects financial performance to improve over the near to medium term as a result of investment initiatives, reduced diesel demand from recent record levels and lower working capital needs. Enap was last in the international market in 2004, so it should benefit from scarcity value as well as a relatively positive zip code. Its last bond deal was a $150m 10-year through Deutsche Bank that came with a 4.875% coupon.

UBS Pactual has given a neutral rating to DyS stock after Wal-Mart announced plans to acquire the company for about CLP259.4 per share, or $2.8bn. UBS believes that “revenue expansion is the most significant challenge for DyS . . . as penetration of supermarkets in Chile is high [and] non-organic expansion plans for the largest players appear limited by the country’s antitrust authorities and competition is very strong.” The shop also says DyS faces the challenge of expanding internationally to get exposure to less mature and faster growing markets, which supports expectations of a possible foray into the Peru market, where Wal-Mart does not have a presence. “DyS had already opened an office in Peru and had plans to open stores in a smaller format. But with Wal-Mart, it is possible they may decide to open larger format stores,” says Francisco Errandonea, head of equity research at Santander Investments in Chile. Meanwhile, Fitch has placed DyS ratings on rating watch evolving. The agency believes the acquisition would benefit DyS because of Wal-Mart’s operating expertise and financial profile. Fitch had placed DyS ratings on negative outlook on December 12.

GDF Suez Andino, the Chilean subsidiary of GDF Suez, has obtained a $393m A/B project loan from the IFC and commercial banks Calyon and Fortis to finance the construction of the Central Termoelectrica Andina power station. The loan, says GDF, will consist of two tranches. The first from the IFC is for $100m and the second, from commercial banks, is for $293m. The loan has an amortization period of 17 years and a balloon payment of 25%, the company says.

Wal-Mart’s purchase of Chilean retailer DyS for up to $2.8bn could make it easier for the US firm to enter the Peruvian market, say analysts. “DyS had already opened an office in Peru and had plans to open stores in a smaller format. But with Wal-Mart, it is possible they may decide to open larger format stores,” says Francisco Errandonea, head of equity research at Santander Investments in Chile. He adds that “it is not likely that Wal-Mart would acquire a existing chain in Peru, as the retail market there is not as developed as Chile’s.” A banker away from the deal also says that Wal-Mart is likely to expand into other LatAm markets with the help of DyS, whose controlling family will retain 40% of the company. Errandonea also thinks that Wal-Mart will reduce prices at DyS stores, making competing retailers cut prices too. Barclays Capital and UBS are advising Wal-Mart on the DyS acquisition, while JPMorgan is advising DyS shareholders. Wal-Mart set as a condition the acquisition of at least 50.01% of DyS’s fully-diluted common shares. Wal-Mart already has a presence in Argentina, Brazil, Puerto Rico, Costa Rica, Guatemala Honduras, Mexico and Nicaragua. IM Trust is the dealer-manager for the equity tender offer expected to commence today in the US and Chile, according to Wal-Mart.

Analysts are upbeat about Wal-Mart’s intentions to acquire Chilean retailer DyS for up to $2.8bn, or 40.8 cents per share in cash. They say the price is attractive for the seller and will allow the US giant to enter other LatAm markets where it is not already present. Francisco Errandonea, head of equity research at Santander Investments in Chile, believes the price is decent for the seller and he is positive the deal will be approved by DyS shareholders and regulators. “Our objective price for DyS is CLP225 per share and the offer is better,” he says. “An acquisition of this size taking place during a global financial crisis reflects positively on Chile’s retail industry and its economy,” says Patricio Hernandez, an analyst at Banchile, who tells LatinFinance that the price offered is “attractive and reasonable.” He had also priced DyS shares at CLP225, or about 35 cents a unit. A Chilean banker away from the transaction says that Wal-Mart’s offer is lower than what retail chain Falabella had bid last year, but that given the global crisis, it is still appropriate. Hernandez says the two deals are not comparable, as Falabella wanted to merge, while Wal-Mart is looking to acquire DyS. Falabella had offered CLP300 per share, or about $3.7bn, but the deal was rejected by Chile’s government early this year. The global economic situation has deteriorated significantly since Falabella’s offer. The Chilean currency has meanwhile weakened, from a 2008 high of CLP430 per US dollar to a current CLP654 per dollar, making the purchase better for Wal-Mart. DyS shares jumped 27.5% on Monday to close at CLP249.

Chile’s state-owned electricity company Endesa has issued $332m equivalent (UF10m) in 21-year inflation linked 4.75% coupon bonds at 99.33 to yield 4.81%. The issuer was also considering selling 5 and 10-year notes for a maximum UF10m size, but placed the whole deal at the long end. “Demand at better pricing, curiously enough, was at the longer tenor,” Santiago-based BBVA director Alejandro Bertrand tells LatinFinance. “Endesa is a safe haven for Chilean investors,” he adds. Bertrand says that the spread was some 161bp over the government curve, versus a 175bp target when the issuer first went out. “This is almost double what they were paying a year ago,” adds the banker on the deal, who says it was slightly oversubscribed. AFPs consumed 60%-70% of the offer, while life insurance companies took roughly 30%, with the remainder going to brokers, banks and mutual funds. Total demand was UF12.15m, says Bertrand. The locally placed notes amortize in equal biannual installments starting June 15 2019 and are callable in December 2011 at a make whole of 70bp. Feller Rate and Fitch gave the deal an AA minus rating. BBVA was the lead and proceeds are earmarked for refinancing short and long term debt. The BENDE-M series auction was done Thursday by electronic Dutch auction. According to Bertrand, there is still demand in local markets, aided by the fact that the captive domestic investor base is repatriating funds following overseas losses. “There is money for good names,” he adds. Chile’s pension funds have roughly $100bn in assets.

Chilean retail conglomerate Cencosud has put a bond issuance on hold, a company spokeswoman tells LatinFinance. “The company filed to issue the bonds, but there are no plans to issue them,” says a banker on the deal, who declines to comment on reasons for the delay. A Santiago-based banker not on the deal says he believes the issue will happen in January. Celfin Capital is the lead. Documents filed with the Superintendencia de Valores y Seguros show that Cencosud filed to issue up to UF6m ($210m) in 4 series. Series G will have an interest rate of 4.7% amortizing in 2016. Series H, amortizing in 2019, has an interest rate of 180-day Libor plus 2.5% and is callable starting October 15 2013. Series I, amortizing in 2017, has an interest rate of 4.7% and is also callable October 15 2013. Series J has an interest rate of 4.8% and amortize in 2029. It is callable October 15 2018.