Category: Chile

Chile’s finance ministry is seeking to enhance the local derivatives market by eliminating uncertainty regarding how they are taxed. Finance minister Felipe Larrain says in a statement that currently investors have no way of knowing if an option will be classified as a hedge or speculation for tax purposes. “We want to make sure Chilean companies, especially smaller ones, have access to hedges with the legal certainty that it will be treated as a hedge and not as speculation because they pay different tax rates,” he adds. He explains that this uncertainty undermines the development of a key market for the financial system and that by eliminating uncertainty, the derivatives market will gain depth and liquidity, improving financial risk management.

Chile’s ENAP is expected to raise up to $500m through a bond issue as soon as today, according to investors. The state-owned gas company is heard whispering a high 5% yield in meetings with the buyside this week, conducted officially on a “non-deal” basis, as it weighs fundraising options which also included a syndicated loan. A 10-year issue is anticipated. Low cashflow and high leverage have strained ENAP’s credit profile, as indicated by a recent downgrade to BBB minus from BBB from S&P and an outlook change to negative on a Moody’s A3 rating. However, Chile’s government is seen as a willing provider of support, should the situation rapidly worsen. BofA Merrill Lynch, BBVA, BNP and Scotia have been coordinating investor meetings this week in London, Boston and New York.

Moody’s has changed the outlook of Chile-based ENAP’s A3 ratings to negative from stable to reflect the oil company’s high leverage, which is equivalent to about 7.7x debt-to-Ebitda. Moody’s says it remains concerned that the company has limited opportunities to reduce debt given expected continued levels of high capital spending over the near to medium term while refining margins will likely remain below mid-cycle averages. As such, sizable debt reduction without a capital infusion from the government will be difficult, it believes. S&P had already chopped ENAP’s ratings to BBB minus from BBB July 30.

Chile’s ENAP is set to begin meeting investors today through Wednesday on a “non-deal” basis. The state-owned gas provider plans to visit London, Boston and New York, in meetings arraigned by BofA Merrill Lynch, BBVA, BNP and Scotia. A company official says ENAP is evaluating its financing options, which include bonds and a syndicated loan, as the company looks to refinance $600m maturing in the next 5 months. S&P Friday lowered ENAP to BBB minus from BBB. The agency sees a “very high” probability that it will require intervention by the state, due to a cashflow generation that may be too weak to meet refinancing needs.

Chile’s Corpbanca has closed a $167.5m 2-year loan and is considering issuing bonds in the second half. The loan through joint leads BNP, Citi, Commerzbank, Standard Chartered and Wachovia saw retail participation from ING, HSBC and BAC Florida. Pricing was on a ratings grid, out of the box at 95bp for BBB+. For an A minus rating, the spread falls to 87.5bp, rising to 112.5bp for BBB, and 137.5bp at BBB minus, say bankers. The average life is roughly 1.75 years. The transaction was expected to be for $150m, though bankers had said it could be upsized depending on demand. The deal was 30% oversubscribed, says a lead banker. “This went very smoothly, as would be expected for a Chilean, investment grade, well capitalized bank,” adds the banker. The loan was taken to diversify the bank’s source of funding, says John Fischer, head of investor relations at Corpbanca. The bank is also looking to issue bonds on international market in the second half of 2010. “We have a high concentrated of short term liabilities, with time deposits making up 60% of our assets,” says Fischer. “We want to finance with more long term assets, which is also why last year we did 2 bond issues. This is particularly important as in the past year we have increased our market share of the loans market by 15bp,” he adds. Corpbanca’s long-term goal is to increase its market share of loans by 20bp every year, adds Fischer. The bank is particularly looking to increase volume in mortgage loans. Of its loans portfolio 75% is commercial and 25% retail, though it is looking to increase the retail share to 30% in the medium to long term, says Fischer. He adds that Corpbanca’s market share last year was 7.25%, year-to-date it is 7.42% and that the bank hopes to end this year with 7.45%-7.50% market share.

Chile’s Banco Internacional issued UF750,000 ($31m) in 5-year bonds via Dutch auction. The notes priced at 101.77 with a coupon of 3.50% to yield 3.10%, a spread of 90bp over the BCU-5 benchmark. Proceeds will be used to finance expansion plans and long-term credit products. Euroamerica Corredores de Bolsa managed the sale.

Chile has been whispering UST plus low 100s on a new dollar bond and high 5%s yield on a global peso tranche, according to investors. The $1bn 2020 USD and $500m 2020 CLP bonds are expected to price today, following conclusion Wednesday of investor meetings in the US. Talk is in line with expectations of a deal coming inside Mexico and Brazil, though how much of a concession will be given by Chile – which has an illiquid curve, but is also the region’s highest quality credit – remains to be seen. Barclays expects a 15bp-20bp concession, on top of the 96bp spread between its 10 year CDS and UST. The shop spots fair value on the CLP portion at 5.82%. Citi, HSBC and JPMorgan are managing the sale, rated Aa3/A/A+ and Chile’s first since 2004.

S&P has given an A+ rating to Chile’s upcoming bond issue. The sovereign is pitching investors through Wednesday $1bn in USD bonds and a $500m debut in global pesos. Given the high ratings (A1/A/A+), DCM bankers away from the deal and analysts expect Chile’s first deal since 2004 pricing comfortably through regional low-yielders Brazil and Mexico. “The sovereign ratings on Chile – the highest in Latin America – reflect a strong political consensus on key economic policies, the credibility of its institutions, and a track record of stable economic growth,” S&P says, specifically highlighting countercyclical measures during the 2008-2009 global crisis. The shop finds that neither the credit crisis nor the earthquake will hinder Chile’s growth, which it expects at 4.5% in 2010 and 5.0% in 2011, following a contraction of 1.5% in 2009. Citi, HSBC and JPMorgan are managing the transaction, expected to launch after the roadshow.

Chile’s Banco Internacional plans to issue UF750,000 ($31m) in 5-year bonds tomorrow via Dutch auction. The notes will pay a coupon of 3.5%. Proceeds will be used to finance expansion plans and long-term credit products. Euroamerica Corredores de Bolsa will manage the sale.

A new Chilean bond expected next week could come at a tight price, RBS says in a report, possibly shifting the curve of the country’s corporates. “Though the marketing process is still early, given the scarcity of similar assets, we believe the deal could come surprisingly rich, which then could reprice the market of Chilean corporates,” the shop says in a report. Should this happen, RBS highlights Colbun’s 2020 bond, trading to yield 5.35%, as a good play given its strong regulatory framework and place in an industry benefitting from the earthquake rebuilding effort. Arauco’s 2019s, at 5.04%, should benefit, given the developer’s industry leading position. “We think this will be a low-yielding issue as Chile is the highest rated name in the region at Aa3/A+/A and 5-year CDS is trading at a low 88bp,” says Bulltick in another report. Chile announced last week a roadshow beginning today and finishing Wednesday to pitch its first issue since 2004 – expected to be $1bn in 2020 bonds and $500m in 2020 global peso-denominated notes. Citi, HSBC and JPMorgan are the leads.