Nextel Mexico, the operating subsidiary of NII Holdings, has signed an agreement with China Development Bank for a $375m loan. The loan will fund the purchase of Huawei Technologies’ 3G network infrastructure. The financing has a final maturity of 10 years with a 3-year drawdown and a 7-year repayment term. The company did not return calls regarding the rate of the loan.
Chinese companies want to invest in Latin America, but access to cheap financing can be an uphill struggle.
Rapid growth is still predicted, but the country is encountering speed-bumps along its way. Maintaining fiscal discipline and inflationary pressures will be among the challenges.
Chilean auto lender Forum issued CLP20bn ($41m) in local bonds. The 3-year AA minus/AA+ bond priced at 98.84 with a 6.90% coupon to yield 7.35%, or 102bp over the BCP-3 government benchmark. Demand was about CLP50bn, says a banker on the deal. Proceeds will go toward working capital. Banco Estado led the sale. In March, Forum sold a 6.75% coupon 2.5-year bond to yield 115bp over the BCP-3, also through Banchile.
The financial benefits to Costa Rica of diplomatic ties with China may spur others in Central America to follow. Those recognizing Taiwan still get Chinese energy dollars.
Asian wealth managers are looking to raise equity exposure while diversifying bond investment in LatAm. The opportunities will continue to grow alongside trade.
Apax Partners last year announced its first deal in Brazil and is actively building a pipeline in LatAm. More European private equity firms are following its lead.
In a year of significantly increased Chinese buying of LatAm assets, CNOOC’s purchase of 50% of Bridas was one of the largest South-South deals.
Sinopec, a subsidiary of China Petrochemical Corp, is buying the Argentine oil and gas assets of US-based Occidental Petroleum (Oxy) for about $2.5bn in after-tax proceeds. A source with knowledge of the deal says Sinopec will finance the acquisition mostly with loans from Chinese national banks. “There were no private banks involved. The Chinese government has a lot of dollars in reserves and part of it is earmarked for natural resource investments,” he explains. Sinopec will also use some cash on hand. A banker away from the deal says that the price being paid is attractive for Sinopec, as asset values in Argentina are constrained by the local government’s cap on the price per barrel of oil at around $50. The deal comes shortly after Bridas, 50% owned by national Chinese oil company CNOOC, announced it would acquire BP’s stake in Pan American Energy, also in Argentina, for $7.1bn. This is not Sinopec’s first deal in LatAm. In October, it sold a 40% stake in its Brazil unit to Chinese oil firm Sinopec for $7.1bn. Scotia Waterous advised Sinopec on both the Oxy and Repsol deals and Oxy did not use outside financial advisors, the source says. Oxy expects the deal to be completed in Q1 2011. The Argentine assets being divested produce approximately 44,000 barrels of oil per day.
China Construction Bank (CCB) sees scope to significantly increase volume in its settlement business supporting RMB-denominated trade between LatAm and China. “We think it could be a very big opportunity for our bank,” says John Weinshank, head of trade finance and corporate banking at CCB’s New York office. Since the end of April, CCB has done over $300m in deals for international trading companies shipping LatAm commodities to China. Much of it is Argentine soya beans, but the deals also include softs and metals from Brazil and Chile. “By the end of the year it will be more like $500m [in deal volume],” Weinshank tells LatinFinance. Putting contracts in RMB can give suppliers to China an edge over competitors, while also decreasing their reliance on the dollar, says the banker. Payment terms are given up to 360 days and CCB settles for the LatAm exporter in dollars. “Their functional currency is not the dollar, and the dollar’s appreciating while the RMB’s appreciating,” says Weinshank. “If they’re on the selling side, it would make more sense for them to have a more valuable currency that they will translate back to their local currency,” he adds. The product is particularly suited to clients with global flows. They can have proceeds remitted in dollars, or keep an RMB deposit and benefit from any appreciation in the Chinese currency. RMB deposits would also generate a higher rate than USD. “If Codelco or Vale came to us and said we have RMB exposure, can we settle it with you, we’d be delighted,” says Weinshank. The CCB business is run from New York, but the bank is considering establishing offices in region. A Brazil branch looks most imminent, following several trips to the country by senior CCB bankers. The New York branch is not yet authorized to lend to LatAm corporates. CCB is one of the biggest banks in the world.