Category: Chile

Banco de Chile is scheduled to this week offer $176m equivalent in Chilean peso shares through Banchile Corredores, according to Dealogic. The last trade before the announcement was at CLP41.63. Citi recently announced it is taking a 33% stake in Banco de Chile. The Chilean deal is a lone contender for LatAm equity investors who have been inundated of late, mostly with Brazilian shares. For the first week in a while, the pipeline is devoid of Brazil names, following last week’s shakeout. Markets are up again, but issuers will probably opt to stick to the sidelines for now.

Chile has recorded a fiscal surplus of $4.6bn in the second quarter of the year, representing 2.9% of estimated GDP, and took the fiscal surplus as a percentage of GDP for the first half of the year up to 5.3%. Buoyant world copper prices continued to swell revenues but the government has maintained its policy of fiscal restraint with regards to spending, electing to pay down debt and keep funds in reserve for future costs, such as pension liabilities. Commenting on the latest figures, Goldman Sachs commended the country’s “strict adherence to fiscal discipline” and noted that: “The pursuit of a disciplined counter-cyclical fiscal policy stands in sharp contrast to the experience of other credits, such as Ecuador and Venezuela, which have also benefited from significant increases in export prices”.

Ricardo Doñas has resigned as chief executive of Banco Ripley, the banking unit of Chilean retail group Ripley Corp, and will step down effective August 6, reports Chilean daily El Mercurio. He will be replaced by Oscar Cerda, according to a note sent to the country’s securities and exchange commission, SVS.

The Citi-Banco de Chile deal is “. . .representative of the increased interest and commitment we are seeing from major international banks not only in Chile, but in the Latin American region as a whole,” says Moody’s. “This is due to the greater confidence on the part of international banks and the stability that improved country risk profiles and institutional frameworks suggest. There is also the promise of regional integration and more robust business environments generated by the proliferation of free trade agreements,” says the agency in an analysis of the Citi purchase. Moody’s speculates that other potential suitors might pursue larger investments in Chile and elsewhere. It says Scotiabank’s Chilean operation is looking to diversify and increase market share, while Santander may acquire ABN AMRO’s operations in Brazil and perhaps Chile. It also notes that HSBC has also been quite vocal about stepping up its presence in Chile and Peru, while BBVA is on the lookout for acquisitions and strategic partnerships with specialty lenders and retailers.

The purchase by Citi of a piece of Banco de Chile could have wider repercussions, according to analysis by Moody’s. “This transaction has the potential to dramatically shift the balance of competition among banks in Chile, particularly for the largest players, in terms of pricing power, operating efficiency, and product offerings given the management and financial resources available within Citigroup,” says the agency. “We believe nevertheless that it may put even greater pressure on medium-sized or small banks which would spur further consolidation through other mergers or strategic associations.” It sees pressure in particular on domestically-controlled banks like Bci, “. . . the fourth largest bank, whose capital base is much smaller, but has an established and diverse retail franchise that makes it an attractive partner for domestic and international institutions alike.” Other potential targets in Chilean bank M&A include CorpBanca, Banco del Desarrollo and Banco Security. However, Moody’s still views the deal as a positive for the Chilean banking system, in light of financial and qualitative benefits.

Santander Chile, the country’s largest financial institution, has placed $182m worth of bonds to fund expansion plans, the bank announced. The inflation-adjusted, four-year bullet bonds were sold at a spread of 63bp over five-year local central bank bonds. Last week, Banco Santander Chile’s main rival, Banco de Chile, announced the merger of its banking operations with the local affiliate of Citi.

Chile’s central bankers will likely hike the benchmark interest rate by 25bp to 5.25% this Thursday, according to Wall Street estimates. Consensual remarks on the increased pace of economic expansion following the monetary policy committee’s June meeting and a subsequent rise in inflation for the month have economists betting on a quarter-point hike, even possibly a 50bp rise. Chile’s benchmark rate has been at 5.00% since January, when it was lowered from 5.25%.

Chile’s industrial output faltered in May, increasing only 3%, year on year. However, local analysts said the slowing growth was merely a stutter in a rising trend, caused by a shortage of gas from Argentina and air pollution alerts, which led to factories reducing production.

Chilean air carrier Lan has raised $320m from the sale of 19.882 million new shares on Friday in Chile and the US. The proceeds of the 6.2% capital increase will fund expansion plans over the next four years, which have an estimated cost of around $1.8bn. Lan has units in Chile, Argentina, Ecuador and Peru.

Chile’s foreign debt rose to $47.59bn in 2006, a 5.9% rise on the same period in 2005. The additional $2.66bn of debt comprises $2.23bn of short-term and $426m long-term debt. External debt as a percentage of GDP fell from 37.8% in 2005 to 32.6% in 2006.