Category: Chile

AES’s Chilean power project Angamos succeeded in closing a $989m loan with a group of commercial and multilateral banks last week, but it should not rest easy yet, as pricing may still be adjusted upwards. The deal has not yet funded and should not do so for at least 2-4 weeks, say people close to the process. If 33% of the syndicate says at the time of funding that Libor does not reflect cost of funds, a mechanism for recalculating the pricing basis could be put into action, say people close to the process. In other words Angamos may still see a substantial hike for all in pricing by the time of closing. In a recent deal for Braskem, pricing was increased by 100bp in the first semester to reflect higher funding costs. In the case of Arcos Dorados, the borrower was stuck with a 150bp flex for the life of the 5-year deal. Angamos is a 17.5-year project deal with 3 tranches: A $675m KEIC tranche, a $233.5m commercial tranche and an $80m LC tranche. Pricing on the deal is 205bp over Libor for the 2.5-year construction period, and step-ups from 230bp-250bp in the 15-year post-construction period. The deal is led by BNP and ABN AMRO, each of which took $104m tickets. Calyon, SMBC, Deka, DZ, HSBC and Fortis each took $100m MLA pieces, while Dexia, KfW got $70m and $60m respectively. Helaba and ING came in with $30m and $20m tickets each.

Angamos, a Chilean power project belonging to AES, is close to wrapping up a $1.06bn 17.5-year syndicated project loan, say people close to the deal. A closing could take place this week, though it could easily extend into the following week as the deal awaits final approvals on tickets. Pricing flexed up in late July following changes in funding costs for banks. No changes to spreads have since been reported, and the transaction is expected to close on the following terms: a $715m Korean Export Insurance Corp (KEIC) backed tranche paying Libor plus 120bp, from an originally launched Libor plus 90bp, and a $270m commercial tranche at 175bp in years 1-3, 190bp in year 4, 200bp in years 5-8, 210bp in years 9-11 and 220bp in years 12-14. The latter piece originally had had step-up pricing of 135bp-190bp over Libor. There is also a $75m 5-year construction loan at Libor plus 175bp. Fees for the KEIC tranche and the $270m commercial tranche are 55bp for $70m tickets and over, according to Dealogic. ABN AMRO and BNP are leading. AES has a pipeline of several LatAm power facilities, including a $580m transaction in El Salvador, also aimed at the bank market with a similar structure including a KEIC tranche; and one in Trinidad. Also in Chile, it is heard seeking funds for its Campiche facility with Calyon and Fortis, which is being bought by lead BNP.

Spain’s Telefonica said it has sweetened its offer for 55.1% of Chile’s CTC from CLP1,000 per series A share to CLP1,100, and from CLP990 per series B share to CLP1,000. It also increases its offer per ADS to CLP4,400 from CLP4,000. The hike would bring the total sale price to about $936m, from about $871.4m. Telefonica also extended the offer to October 30. The offer will be evaluated during CTC’s shareholder meeting on October 28. A Telefonica spokesperson says Santander Investments is advising the buyer.

Chile is interested in getting a contingent credit line (CCL) from the IMF as a backstop in case conditions worsen, according to a senior source familiar with the discussions. The news coincides with private sector calls for the IMF to bring back the CCL, which was floated without success earlier this decade. The fact that it is Chile discussing the line – not one of the more financially stressed LatAm nations – says as much about the seriousness of the crisis as it does about the proactive policies of Santiago. CCLs were first mooted in 2000, and Mexico was expected to take a lead by adopting it. In the end, none were signed. This was partly due to the fact that countries feared the negative stigma of having a CCL: having one could flag crisis in investors’ minds. It was also due to excessive conditionality: those countries who may need it could not qualify, those who were thought never to need it, like Mexico, qualified but did not want a CCL. “This is something that the IMF should do now,” says Bill Rhodes, senior vice chairman at Citi, speaking of reviving the CCL product. He adds that conditionality needs to be reduced significantly and that the IMF must be much more flexible in order to be able to play a bigger role in helping resolve the crisis. Rhodes also says that Brazil does not need a CCL, but he declines to name any others that should seek one.

Chile’s central bank announced that it is temporarily modifying the reserve requirements for banks and savings and loan institutions. The change will allow the financial institutions to include yen, euros and local currency in their coffers. Until now, they were only allowed to keep dollar reserves. The central bank last week opted to leave the overnight lending rate unchanged at 8.25%, despite earlier expectations of more hikes to stave off inflation. “Given the uncertainty in the global market and its projected impact on inflation, the council believes that this decision is necessary to reevaluate the course of monetary policy,” the central bank said.

Chile’s central bank may not increase interest rates after all, following escalation in the global crisis that has forced developed markets central banks to cut rates. Only a few days ago the consensus among economists was that Chile would tighten 25bp-50bp this week, but now it looks like bank will stay on hold. Barclays Capital notes that given the interest rate cuts by major central banks, “a pause is more likely than our previous call of a 25bp hike.” Goldman Sachs’ Alberto Ramos says that while he believes Chile should increase its rate, the most likely outcome is either a 25bp hike or none at all. Bradesco meanwhile cut its year-end Brazil Selic target to 13.75% from 14.25%, effectively ruling out any further increases this year. However, some analysts still see scope for tightening generally in the region. “Past experience suggests that monetary policy in the region is likely to be affected by the sharp currency depreciation that is currently underway. Currency depreciation increases the risk of rate hikes,” says Credit Suisse. “But the historical evidence also suggests that the rate policy response tends to be sluggish and moderate,” it adds.

Chile’s Sociedad Quimica y Minera maintains an upbeat assessment of the outlook for its market, despite global financial meltdown. “Based on the sales we have accomplished so far, our current projections indicate that we will achieve record results in the third quarter,” says SQM CEO Patricio Contesse. “This trend will continue into the fourth quarter and next year, considering that market fundamentals are expected to be strong in the medium and long terms.” The official adds that sales volumes of iodine and lithium have exceeded initial projections. SQM has a $1bn capex plan for 2008-2010, mainly to boost production levels. This will be financed primarily through SQM’s internally-generated cash flow, says a spokeswoman, declining to elaborate. SQM predicts a year-end 2008 ratio of net financial debt to Ebitda under 0.5x.

Chilean state-owned bank BancoEstado has priced $76m in 2028 bonds denominated in the UF inflation-linked unit, at a yield of 4.45%. Proceeds will go toward strengthening the bank’s capital base. BancoEstado managed the sale, rated AAA on a national scale.

Moody’s has upgraded Chilean gas and power utility Edelnor to Ba3 from B2, with a stable outlook. “The rating action primarily reflects an improved business environment for Edelnor due to the drastic reduction of low-cost natural gas imports to Chile from Argentina, thus allowing Edelnor to increase its contracted dispatch capacity,” the agency says, adding that it expects dispatch rates to remain high in the near term. Despite exposure to volatility in the mining and commodity sectors, Edelnor’s leverage has reduced, and cash flow generation and business risk profile have improved.

Chilean water distribution company Aguas Nuevas is exploring the sale of 100% of its assets to Australia’s Challenger Management Services, the Chilean company says in a filing with the local regulator. The sale will include subsidiaries Aguas del Altiplano, Aguas Araucania and Aguas Magallanes, the company says. In 2007 Aguas Nuevas reported CLP16.23bn in profit.