Category: Chile

Chilean electric utility Endesa has called on its relationship banks for its most recent financing, a $400m 6-year bullet loan. The facility is being raised with a club of five banks and will not be syndicated, say bankers close to the process. The margin is Libor plus 75bp, considerably wider than what the company has paid on similar financings in the past two years. In April 2006, Endesa Chile Overseas raised a $200m 6-year facility at Libor plus 30bp, while a 3-year revolver raised in February 2007 pays Libor plus 25bp, according to Dealogic. Forming a club allows Endesa to rely on five banks for a presumably lower rate than it would achieve if it were to syndicate it broadly. The combination of tenor and pricing are seen as too aggressive for most participants coming in at a retail level, say bankers away from the deal. Each lead bank in the club is pitching in average tickets of $80m. Bankers close to the process say Santander, BBVA, Bank of Tokyo Mitsubishi, Caja Madrid and Banesto make up the group. CMPC, the Chilean paper and pulp company also recently formed a three-bank club for its $250m 5-year bullet at Libor plus 55bp, but later decided to open it up to more banks for a limited syndication.

Fitch has affirmed Chile’s ratings at A (positive) based on a healthy financial system, solid macroeconomic policy framework and low debt. However, inflation is a problem. “Chile’s creditworthiness could improve with evidence that the central bank can successfully execute plans to improve the country’s international liquidity position, while simultaneously bringing inflation back under control,” says Fitch associate director Casey Reckman. The agency notes external fuel and food price shocks in the second half of last year, propelling 2007 year-end inflation to 7.8%, well above the central bank’s target level of 3.0%. “Significant energy sector bottlenecks added to pressure on prices and could shave as much as 1% from GDP growth before supply conditions ease,” says Fitch. Government debt ratios improved to 4.1% of GDP in 2007 versus the A median of 29.5%, it adds. “The country’s strict adherence to fiscal discipline – despite very low public debt levels and low financing real interest rates – is commendable,” Goldman Sachs says in a comment on the rating action. The Chilean government continues to save a substantial part of its copper windfall, Goldman notes, in sharp contrast to countries like Ecuador and Venezuela.

Chilean retailer Falabella plans to invest $2.8bn between 2008 and 2011, Juan Carlos Espinosa, development and planning manager of the company tells LatinFinance. The spending aims at doubling the amount of stores the company has, as well as covering overall investment in all four business units of the company. It has operations in Chile, Peru, Colombia and Argentina. Falabella is exploring its options for financing the plan, including bonds and traditional debt, Espinosa says. Falabella has supermarkets, retail operations and consumer finance.

The Chilean central bank has left its 6.25% benchmark rate unchanged, as spending growth remains high but private consumption spending is starting to decelerate. “Higher international oil and agricultural commodity prices and the recent 9% weakening of the CLP could pressure inflation readings over the next few months and put added pressure on the central bank to take ownership of the challenging inflation dynamics,” Goldman Sachs says. Inflation outlook is still extremely challenging, according to the shop, as non-tradable inflation accelerated to a high 10.8% yoy in April and core to 8.1%. “However, at this stage the central bank is still resisting hiking the policy rate from the current neutral 6.25%, as it shows concern, perhaps excessive, with the sluggish pace of activity and the level of the CLP,” GS adds. Peru’s central bank meanwhile kept the benchmark rate at 5.5%. The bank said it will continue its efforts to maintain low inflation, as Peru currently experiences high food prices.

Cencosud has priced $276.3m equivalent in 10 and 20-year bonds denominated in the UF inflation-linked unit. The Chilean retail holding company launched UF2m (CLP39.99bn, $85m) in 2018 bonds at 96.12 with a 3.50% coupon to yield 3.98%, and UF4.5m (CLP89.97bn, $191.3m) in 2028 notes at 97.06 with a 4.00% coupon to yield 4.22%. Proceeds will be used to refinance debt. Santander managed the sale.

The board of the central bank of Chile is expected keep the benchmark interest rate of 6.25% unchanged at Thursday’s policy meeting, according to Merrill Lynch. At its last policy meeting, Chile held rated and removed its tightening bias. “The board’s decision to remove the tightening bias at the last meeting signaled less concern with the inflation scenario ahead,” Merrill says. However, Chilean consumer prices rose 0.4% month-on-month in April, the top of market expectations, while core and non-tradable inflation was high and continues to accelerate on a year-on-year basis, says Goldman Sachs. “Particularly worrisome is the fact that core and non-tradable inflation continue to accelerate,” says Goldman. “If the inflation picture does not improve visibly over the next 2-3 months we do not rule out that the central bank could, despite the neutral bias, hike rates in order to aid in the inflation convergence process. However, for the time being we expect the central bank to remain on hold,” Goldman adds.

Consumer prices in Chile should post an increase of 0.5% and 0.6% at the headline and core levels, respectively, versus March, according to Credit Suisse. April data is due Monday. “If our estimates prove accurate, annual headline inflation will decline slightly to 8.4% from 8.5% in March,” CS says. “Annual core inflation would rise to 8.0% from 7.7%.” The shop also anticipates that the central bank will leave the policy rate unchanged at 6.25% after the monthly monetary policy meeting to be held Thursday.

Cencosud plans to sell Wednesday up to $280m in 10 and 20-year bonds denominated in the UF inflation-linked unit. The Chilean retailer will launch up to UF6.5m (CLP129.79bn/$279.1m) in 3.5% 2018 bonds and 4.0% 2028 bonds. It does not name a manager for the transaction. Cencosud last month approved raising CLP32bn via issuance of 40m new shares.

Banco de Chile has priced a self-led local follow-on offering for $27m, according to Dealogic. The bank issued 320m shares this week at CLP39.10 each. The filing was done in August, when the share price was CLP38.50. The bank’s own broker Banchile Corredores de Bolsa ran the offer. The transaction is the fourth to come to market this year in Chile’s local market, according to Dealogic. Ripley, the retailer, Masisa the manufacturer and Forus, the footwear and clothing seller have brought a total $360m via follow-ons led by Celfin and Deutsche bank, Larrain Vial and IM Trust respectively.