Category: Chile

Chile’s banking system can handle losses generated by the recent earthquake without compromising capitalization, Moody’s says. “Given the heightened challenges and potential for asset quality stress on banks, we have revised our scenario estimates to include further stress on the loan portfolios exposed to the affected regions,” the agency says. “While the full effects of Chile’s earthquake on the banks’ asset quality and earnings are still being determined, our preliminary analysis shows that higher-than-expected impairments could be fairly contained relative to the banking system’s present capitalization and reserve position,” Moody’s says, adding that realized losses could still be substantial.

Japan eximbank JBIC says it will co-finance with the Bank of Tokyo-Mitsubishi UFJ a $497m USD-denominated project finance loan for P&M Drilling International, a company controlled by Petrobras and Mitsui. The loan will finance the ultra-deepwater oil drillship project in Brazilian and overseas coastal waters, JBIC says. It adds that P&M will build and own an ultra-deepwater drilling rig and provide drilling service for 20 years through Transocean Group, the world’s largest deepwater drilling rig operator. JBIC does not say what the loan’s maturity or interest rate is.

Investors from the US, Russia and Hong Kong are eyeing the possibility of putting around $100m into Chile to help a European hotel chain open six 3 and 4-star hotels, says Marcos Kaplun, a partner at Kayco International Group. The local consulting firm is getting the hotel chain in touch with potential investors. Kaplun does not disclose the name of the chain, but tells LatinFinance that US real estate financier WP Carey & Co is one of the entities he is in talks with. He adds that construction of the new hotels should start this year.

Chile plans to turn to a mix of outside funding sources to raise the more than $700m it needs to fund earthquake reconstruction, according to the new finance minister. “We have a number of options to finance the reconstruction,” says Felipe Larrain, adding that the $700m will come from running a budget deficit and be put in a special reconstruction fund. He explains that the shortfall should be funded through a mix of multilateral borrowing, the sale of local and international bonds, and by drawing on a $12bn sovereign wealth fund. He declines to give further details, saying that the exact proportions of the different options are now under study. The government is now working on an agreement with the IDB, he says, and expects an announcement soon. Larrain expects the budget deficit this year should still be less than the 4.5% Chile ran last year. The $700m figure represents what the government will initially put toward public infrastructure repairs. The total cost of the damage from last month’s strong earthquake is estimated at $30bn. CAF approved earlier this month a $300m credit line for Chile. The government had already planned to raise $3bn equivalent through local debt sales in the first half of 2010. It has not sold a dollar bond since 2004. Local brokerage BCI Corredores de Bolsa expects Chile to issue $2bn more in bonds to help finance reconstruction, according to Dow Jones, which cites a BCI report. Larrain was speaking at IDB meetings in Cancun.

As expected, Chile’s central bank left the monetary policy rate unchanged at 0.5%. The bank says that “given the current circumstances, marked by the uncertainty associated with the effects of the earthquake, maintaining the policy rate at its minimum 0.5% level until at least the 2Q2010 is coherent with projected inflation at 3.0% over the relevant horizon for monetary policy.” Goldman Sachs says that rather than initiating the rate normalization cycle sometime during Q2, it now expects the central bank to delay the first move to no earlier than Q3, with the policy rate likely reaching year-end 2010 at no more than 2%. Bulltick, which also expected no changes to the policy rate, believes there will be no hikes “until earliest the last quarter of this year if at all.”

S&P has placed its ratings on 3 Chilean entities on credit watch with negative implications pending further analysis of the financial and operational consequences of the earthquake. The agency says steel producer CAP may have suffered damage to its productive assets that may delay its ability to improve credit metrics. Fitch said last week that the event could undermine CAP’s rating. S&P also thinks urban toll-road operator Sociedad Concesionaria Vespucio Norte Express may experience a prolonged period of operating with part of its highway closed to traffic. This could threaten its ability to generate the strong revenue growth needed to meet original estimates after the toll road initially attracted low volumes of traffic, adds the agency. It adds that Petropower Energia faces increased credit risks because of its single-asset nature and other challenges. “While we believe reconstruction will not ultimately affect the country’s creditworthiness, the damage is extensive, and we think there may be some bottlenecks in rebuilding activity and processing insurance claims,” says S&P. It expects to resolve the credit watch during the next 90 days.

The recent Chilean earthquake could dent the BBB minus rating of steel producer CAP, says Fitch, which notes severe damage at its CSH subsidiary. “The company estimates that the repair work required to produce steel at normal capacity will take at least 3 months, which could apply downward pressure on existing ratings on the back of difficult trading conditions already experienced during 2009,” says Fitch. It adds that steel rolling lines were not largely affected, and CAP also has insurance policies expected to cover a substantial part of the repair work. Fitch awaits further information to assess the impact of the disaster on the credit profile of CAP. It adds that CAP has a comfortable liquidity position with cash and equivalents of $387m as of end 2009 and a low amortization schedule for the next 12 months totaling $45m.

Banco de Chile has sold UF4m ($164m) in inflation-linked bonds on the domestic market, according to regulators. The 2014 bond priced at 95.18 with a 1.75% coupon to yield 2.99%. The bank is rated AAA on a national scale. The bank’s own brokerage managed the sale.