Category: Chile

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.

The central banks of Chile and Peru have announced their decisions to keep monetary policy interest rates unchanged at 8.25% and 6.50%, respectively. Chile’s central bank indicates that its decision is based on “drastic changes observed in the global economy and their impact on projected inflation” which stands at 9.9%. Peru says that its decision was based on “the elevated uncertainty on the global economy’s evolution and its impact on global economic activity, the prices of our imports and exports and the flow of international financing.” However, it expressed confidence about inflation levels falling in tandem with the prices of raw materials, oil and imported foods. Peru’s inflation stands at 6.54%.

Chilean state-owned copper producer Codelco is understood to have mandated and HSBC and JPMorgan for a bond issue which is unlikely to happen short term. The two apparently took the highest rated LatAm corporate credit on an extensive roadshow in September but they have kept their powder dry ever since. A $500m-$700m 10-year trade was initially expected, but the copper producer is choosing its timing with care. “The market is theoretically open for a name like Codelco,” says a banker who pitched for the deal but lost. “But there is still the problem of willingness to pay.” The banker adds that Codelco would be comped versus global peers like BHP and Rio Tinto, rather than the sovereign, and may not be willing to pay the extra spread required for commodity weakness. The local market, which sprang to life last week with an Arauco trade, is not deep enough for Codelco, which tends to issue in size. Codelco has historically brought bonds every year in the fourth quarter, though last year it opted for a tightly priced loan. In 2006, it issued a $500m 6.15% of 2036 through Deutsche Bank and HSBC at 99.296 to yield 6.202%. Expect Codelco to be among the first LatAm bonds out the gate when markets stabilize, likely early 2009, and high grade jumps back in.

AES subsidiary Inversiones Cachagua has raised $175m from the sale of a 9.55% stake in AES’ Chilean unit AES Gener in a secondary sale on the Santiago stock exchange, it says. The transaction leaves it with a 70.61%, after having sold about 20% in previous secondary sales. The proceeds will go toward Cachagua’s subscription of its proportionate share in Gener’s proposed primary equity offering of up to $300m. Gener shareholders are set vote November 19 on the primary offering proposal. Celfin managed the transaction.

S&P has placed Sociedad Quimica y Minera de Chile’s BBB+ ratings on credit watch negative, it says. The agency expects a more aggressive dividend policy that could affect SQM’s financial profile. SQM’s controlling shareholder Pampa Calichera recently announced the distribution of $100m in provisory dividends, which may jeopardize its ability to make payments on some $500m in outstanding debt, S&P says. It adds that it is awaiting clarification on the company’s repayment plan.

Chilean forestry products firm Celulosa Arauco has reopened the country’s local debt markets after a dry period of more than 6 weeks, underscoring the belief that there is still firm domestic demand out there. Chile had been among the region’s last to succumb to the international credit shutdown, and bankers hope the $203m-equivalent transaction is an indication that stability may be starting to return. Arauco placed UF5m ($169m) in 21-year notes with a 10-year grace period at 93.92 and a 4.25% coupon to yield 5.00%, or 142bp over the comparable central bank bond. A second UF1m ($34m) 6-year tranche came at 97.29 with a 3.50% coupon to yield 4.90%, or 126bp wide. This was 200bp-300bp inside the dollar curve, according to a banker familiar with the credit but not on the deal. A USD-denominated tranche for up to $355m also aimed at local market has been iced, according to a banker on the deal, who blamed lack of investor appetite. The deal, rated AAA on a national scale by Fitch and Feller, was capped at UF10m in total size and is Arauco’s first domestic placement in 17 years, the company says. “It was a demonstration of confidence in the local markets,” an Arauco treasury official tells LatinFinance. Proceeds will repay short term debt and a longer-term loan coming due next year. “Local investors are open for business for the right names,” says a senior New York-based DCM banker away from the deal. “I don’t think they paid a premium,” he adds. IM Trust managed the transaction. Arauco is controlled by fuel and forestry conglomerate Empresas Copec, and a grower and producer of wood pulp, sawn timber and wood panels operating in Chile, Argentina, Brazil and Uruguay.

A package of measures to stimulate the economy and prepare Chile to face the impact of the global financial crisis – which could generate up to $6.5bn in new funds, according to the finance minister – is welcomed by Goldman Sachs. The $1.15bn package aims to boost public investment, support construction, and facilitate SME access to financing through credit lines and loan guarantees. The local IRS will also expedite the return of overpaid income tax and VAT to small businesses, Goldman adds. Meanwhile, the financial public sector will be key in boosting flow of credit to the economy. BancoEstado will get a $500m capital injection and Corfo will receive $200m earmarked to credit to SMEs. “Prudent fiscal policies in recent years (the government generated a cumulative fiscal surplus of over 20% of GDP during 2006-2008) allowed the government to reduce public debt to a very low level (under 5% of GDP) and also to accumulate a large amount of fiscal savings abroad (about 15% of GDP) that can now be deployed to support activity,” says Goldman. “That is, the ability to run countercyclical fiscal policies is a dividend from years of fiscal discipline and forward-looking saving of the copper revenue windfall of recent years.”