Winner: Goldman Sachs
The image of Chile, Colombia and Peru as exemplars of stable and rapidly expanding economies boasting reliable policymaking in support of vibrant and increasingly wealthy populations has taken something of a hit in recent years.
Long-simmering social unrest and political turmoil coupled with the economic tidal wave of the Covid-19 pandemic has dramatically upended the picture across the Andes, which for many years had enjoyed a place of privilege among international investors.
Deal-making against such a turbulent backdrop over the past couple of years has not been for the faint-hearted. Yet one firm stands out for its ability to adapt to the new conditions and its willingness to have skin in what has become an increasingly difficult game: Goldman Sachs picks up the awards for Investment Bank of the Year in all three countries.
“In times of volatility, we tend to be flexible, and we try to be creative in terms working with our clients,” says Fernando Bravo, Goldman Sachs’ managing director in Lima. “We have also been able to commit our own capital in specific transactions, and that is a complement that can be very important in the context that we see in the region today.”
The context in question is one of volatility – even in Chile, which underwent waves of social unrest since 2019, and was then hit hard by the pandemic amid continued political turmoil which culminated in a commission to reform its Constitution. This confluence of factors led prompted a range of measures, including the government’s freezing of electricity prices in a quest to mitigate social discontent.
A group of generation companies went to the market to find a solution to the financial worries caused by the resulting drop of expected revenues. Goldman Sachs’ Chilean team delivered the goods by developing a plan to securitize electricity receivables that helped to stabilize the books of generation companies by anticipating revenues from some years in the future, where prices should be more in line with their projections.
“The deal allowed Chile to bring forward lower power prices from renewable sources to consumers during the very difficult Covid times,” says Tim Kingston, chairman of Goldman Sachs Chile.
The bank not only structured the deal, but also put some of its own capital to work to make it happen. Luis Puchol Plaza, managing director of Goldman Sachs in Chile, expects this kind of commitment to be increasingly sought by clients moving forward.
“Some clients have asked us to really commit our balance sheet in terms of providing certainty of execution for transactions. In such cases, we have underwritten the risk and guaranteed the execution,” he says.
Chilean issuers have been active in looking for alternatives to manage their risk exposures to variables such as commodities prices, inflation and interest rates. At the same time, local capital markets have shown less appetite for issuance, which is prompting companies to turn to international markets in order to transfer their risks, according to Puchol.
“That is clearly something that has increased due to social unrest, the pandemic and the loss of relevance of the local market in favor of the international market. We have helped our clients to proactively manage their exposures,” he says.
Goldman has also led or participated in ESG-themed deals by Chilean issuers, including social bonds sold by the government in the context of Covid-19 mitigation programmes, and even a green bond by SQM, a company that works in the lithium mining sector, which is not the most usual source of green transactions in the market.
“It was a very bespoke transaction in terms of creating a green framework and issuing a bond on the back of that,” Puchol says.
In Colombia, challenges for capital markets have also been bigger than usual in the past couple of years, as the spill-over effects of the pandemic were compounded by a wave of occasionally violent social unrest which further heightened uncertainty in the country.
The government pressed ahead with significant public-spending as it sought to provide relief to families and businesses at the height of the pandemic, though the fiscal response cost Colombia its coveted investment grade status. This in turn complicated the environment for domestic issuers.
“Last year, we had volatility with Covid, social unrest and fears that Colombia would lose its investment grade,” says Laura Ramírez, a vice-president at Goldman Sachs in Colombia. “But we had the ability to provide tailored solutions for our clients and also the capacity to successfully execute transactions amid volatility and conflict situations.”
One example was the debt restructuring of Avianca, the airline company, which was badly hit by the movement restrictions adopted by the Colombian government and led the company to file for chapter 11 protection. The deal involved the issuance of a $2 billion two-tranche facility at the height of the pandemic.
Another was the financial close of Autopista Rio Magdalena, the largest 4G infrastructure project in Colombia to date. “We closed the deal at the time when Colombia lost its investment grade rating,” Ramírez says. “We worked with investors and sponsors to make sure that everybody was comfortable with the structure of the deal.”
In another important transaction, Goldman Sachs acted as joint bookrunner in the $375 million bond issued by Andean Telecom Partners, a provider of telecommunication towers that works in Chile, Colombia and Peru. In the latter country, it participated in the placement of AUNA’s $300 million bond, the first Peruvian high-yield deal since the pandemic started, and the government’s triple-tranche $4 billion offering as part of Peru’s Economic Stimulus Plan addressing the COVID-19 health emergency.
“We have been working with governments, multilaterals and development banks to create programs or financing structures that can address those issues,” Bravo says. “We aim to use our structured finance expertise, a competitive advantage that we have, to help provide support to SMEs and consumer expenditure.”
He adds that Goldman Sachs remains constructive on the region, even though some volatility is set to continue in the near future, as both Chile and Colombia face uncertain elections and as a fragile left-wing government struggles to assert its authority in Peru.