Latin America’s highest-rated sovereign issuer is meeting with investors ahead of a potential local currency bond sale this week.
Chile, rated Aa3/AA-/A+, plans to sell five- and 12-year tranches of Euroclearable bonds, people familiar with the proposed transaction said.
HSBC, Itaú BBA and Scotiabank hosted meetings in London and Los Angeles on Monday and will wrap up the roadshow in Boston and New York on Wednesday. The bonds are expected to price on Thursday.
Trade tensions between the United State and China have impacted debt and equity markets, and many potential issuers from Latin America have postponed plans to sell bonds until market conditions improve. The upcoming presidential elections in Mexico and Brazil have also given pause to possible bond sales. Issuers from Chile and, to a lesser extent, Colombia appear to be better positioned to tap the bond markets under current conditions because the political situation is stable in both countries.
Chile went to Europe in January to sell €830m ($968m) in 2029 notes and a week later printed $1.02bn in 2028 bonds.
In an interview with LatinFinance in April, Finance Minister Felipe Larraín said Chile planned to issue $7bn in local currency bonds through the rest of the year.
Beyond the sovereign
Chile has some of the highest levels of short-term external debt among emerging markets, according to a report from Capital Economics. A large portion, however, represents inter-company lending with the majority concentrated in the country’s mining sector.
But unlike other emerging markets with a lot of short-term foreign debt, Chile is not as vulnerable to rising yields in US Treasury bonds. The bigger risk is lower copper prices, the consultancy firm said.
“Chile is not at the levels of vulnerability of Argentina or Turkey, but it is in the next tier,” said Quinn Markwith, an emerging markets economist at Capital Economics. “Rising treasury yields and a stronger dollar may not pose the same problems for Chile as they do for other emerging markets.”
Copper prices will likely fall over the next year, Markwith said, but “not dramatically so,” when compared to the drop in commodity prices in 2014. “China is therefore a bigger source of risk for Chile than the Fed,” he said, referring to the US Federal Reserve.
He also said Chile’s current account deficit is “fairly small” at $3bn, or 1% of GDP, while its short-term external debt of $59bn represents more than 20% of GDP.
Chilean companies could consider bond sales to raise money for planned investments, marking a shift from the corporate focus on refinancing and raising capital, Rodolfo Schmauk, a director at Fitch Ratings in Chile, said in a report.
“A turnaround in corporate investment levels, led by a better environment for copper prices, improving business confidence and a more positive economic outlook, should stimulate debt market activities,” Schmauk said.
Investment levels have grown over the last two quarters, after being on decline since 2014. Liquidity based on internal cash flow generation is also regaining momentum, Schmauk said.
Enel Chile was the last local corporate issuer to tap the cross-border bond market, placing $1bn in June 2028s earlier this month.