Sovereign Upgrade Heightens Issuance Talk

Any LatAm issuer needing funds should jump on the window that opened up this week, not least Chile, which is flying on a Moody’s upgrade to A1 (positive) from A2. Last week’s blowout issue from A1 rated Israel presents a positive comp, and the sovereign has apparently been considering issuing bonds for several months. However, Chile has access to ample funds at home, and may not see value in a strategic overseas foray. Discussions are apparently focusing on the extent of crowding out for local corporates, but the sovereign seems in no hurry, despite the opportunity. Moody’s says Monday’s upgrade reflects strong resilience to adverse external shocks related to both the government’s robust foreign asset position, as well as a solid balance sheet and Chile’s status as net creditor. The agency lauds solid institutional and policy frameworks, as well as an economic policy framework designed to mitigate macro volatility. “It is quite remarkable that Chile earns a well deserved upgrade amid a period of major global financial and economic distress and significant contraction of activity,” says Goldman Sachs. “This macro management approach sets the standard to be followed by all other credits in the region,” it adds, noting that the promotion brings Moody’s in line with S&P and leaves Fitch a notch lower. Moody’s anticipates weak Chilean growth in the near term, but says long-term ratings look through the business cycle, adding that credit fundamentals will be unaffected. LatAm DCM bankers say that even though Chile may opt to wait, others might seek to take advantage of the Monday rally. Petrobras is rumored to be considering a tap, and other sovereigns may also try to get in before departing for the weekend’s IDB meetings in Medellin.