Category: Chile

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.”

Sociedad Quimica y Minera de Chile plans to sell up to $160m in domestic bonds. The producer of specialty plant nutrients, iodine and lithium wants to issue 10 and 30-year bonds denominated in the UF Chilean inflation-linked unit.

Australian miner Tamaya Resources, which owns the Punitaqui copper operations in Chile, has gone into voluntary administration and appointed Ernst & Young as administrator. In a letter to the ASX, the miner says that “the unprecedented collapse in copper prices in the past two months has resulted in copper prices reaching levels where it is not possible for Tamaya to repay debt to lenders and operate in an orderly fashion.” Subsidiary Iberian Resources, also under administration, says that it will not be able to meet its financial commitments either, and blames the collapse of the financial markets and commodity prices as well as “the withdrawal of funding support” from Tamaya. Copper is trading at around $1.90/lb. In June, it traded as high as $4.00.

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.