Citi was among the first of the big global shops to understand the importance of local markets to the LatAm investment banking story. It may not be the best in every market, but it has the expertise to deliver in domestic currency, as well as bring yield hungry global investors into capital markets that are rapidly developing. The last 12 months has seen increased buyside backing for paper from sovereigns as well as corporates, adding further positive momentum.

“This is a fantastic year in Latin America, really across all the products,” says Hugo Verdegaal, managing director and co-head of investment banking at Citi Latin America. He adds that the outlook remains bullish for local investment banking activity. “We see no let down in that respect.”

Citi’s DCM team has been focusing on local markets since at least 2001, when Mexican peso financing started to take off, aided by the participation of Banamex. “We have been anticipating this as a company for a long time,” says Verdegaal. And the virtuous cycle the region is going through now looks set to provide a continued stream of new clients. “Because of the economic growth path, you see a lot of industries that did not figure on the radar screens before,” says the banker. This plays to Citi’s strength of bringing debut issuers, many of which stick with the bank for the long haul.

In Mexico, the most evolved local market, Citi has been a trailblazing participant in peso debt. Its combination of brokerage, local capital markets, custody and M&A for small to medium firms on the ground helped put Banamex Casa de Bolsa ahead. Links to the resources of the global whole make the shop an even more powerful presence.

In M&A, Citi boasts an impressive roster of blue chips, including fastidious clients like Cemex and América Móvil, as well as lower tier names like Pimsa. It has advised sellers and buyers on both internal and cross border transactions and claims the biggest volume under its belt for the year to date. Dealogic data also shows it with the biggest wallet, at over $90 million in revenue for the region as a whole in the year to October 15. The sale of Kimberly-Clark de Mexico’s industrial products division, Pimsa, to a consortium for $434 million was a standout LBO. Advice to Grupo IMSA on the sale of a Clariond family stake to the Canales family was further evidence of Citi’s skill as an advisor.

Meanwhile, in syndicated loans, the US house has played a lead role in developing leveraged finance. This has mostly involved cross-border acquisitions, but it also incorporates financial sponsor deals and leveraged recapitalizations, all three a specialty for Citi in the region.

Rounding out the franchise is the Citi’s activity in a relatively moribund equity market, including a domestic joint lead role in the standout IPO for Banco Compartamos, the microfinance institution. The domestic allocation rose to 18% from 15%, after the Mexico order book saw coverage of 30.6x, including institutional and retail buyers. The bank achieved a valuation of $1.56 billion, about 19.5x forward earnings, and traded 25%-30% higher on the first day.

Peru Bring Sol Jumbo
Beyond Mexico, a benchmark transaction in 2007 was Peru’s 4.75 billion sol issue of global depositary notes due 2037 issued in July to prepay Paris Club debt. To expand the investor base of Peru’s local bonds, they were offered to 144A/Reg S investors internationally and clear through DTC and Euroclear/Clearstream. The principal and coupons are paid in dollars by converting the payment amounts received by the depositary. Like an ADR, the structure allows holders to surrender notes and withdraw underlying sovereign bonds at any time. Citi says this lets investors “move very fluidly between the international and local markets.”

Citi marketed the transaction globally to investors committed to the Peruvian credit and to local currency investment. Marketing coincided with volatile market conditions and increased risk aversion against the backdrop of a growing sub-prime scare. “The deal generated strong interest at 2.5x oversubscribed, allowing Peru to upsize the deal from the initial announced size of $1.0 billion to $1.5 billion, and to fund a greater portion of their obligation to the Paris Club in local currency,” says Citi.

The shop demonstrated it expertise in exotic local markets with Cerveceria Nacional Dominicana’s March issue, understood to be the first peso-denominated deal from the Dominican Republic. A five-year peso tranche of a dual tranche issue was upsized by $50 million to $150 million and reopened days later for a further $25 million-equivalent. The peso book was twice subscribed, mainly by institutional accounts, despite only being open a day.

A gaping hole for Citi is Brazil, where its reputation for M&A is growing among local clients, but it still has limited expertise in local debt and equity financing. And in Chile, it is still beaten hands down by local shops like IM Trust. The acquisition by Citi of Banco de Chile may at some stage result in an increased investment banking presence, but that will take time to develop.

Citi has balance sheet on its side, so will dominate the larger transactions. But clients on the ground frequently complain that it is hard to deal with, given the sheer size and complexity of the whole. Homegrown shops are moving into investment banking, and other global players like Credit Suisse are also actively pursuing local wholesale markets. Citi will have to keep innovating and cleanly executing to keep ahead for the long term. LF