LatinFinance - May/June 2014 - 20

BANK
CAPITAL

Subordinated debt issuance in Latin America is expected to remain
thin until at least next year. With more clarity on the regulations, savvy
banks may take first mover's advantage. By Karen Schwartz

Slow going

20 l atinfina nce.com - May/June 2014

UPWARDLY MOBILE: Peru's BCP, headquarters pictured here, was the first regional bank
to issue subordinated-debt in 2014

Source: Arquitectonica

ew expect 2014 to be a year of explosive expansion for latin america banks. the
region's economies are slowing. interest rates are rising. also, banks have strong capital ratios
and can rely on deposit funding for the time being.
Despite progress from the region's regulators in clarifying rules for subordinated debt,
it does not bode well for a rebound in regional issuance of these instruments - though
originators remain optimistic.
chris Gilfond, co-head of debt and equity capital markets origination for latin america
at citi, says latin american banks may have been overcapitalized compared to global peers
five years ago. But these days, latin american banks, like their emerging market peers,
are "reaching a point where they're appropriately
capitalized," he says.
that means they need to "more actively manage and
avail themselves of the various tools"- and, as such,
gain a better understanding of the rules and the market
for subordinated debt issuance, Gilfond says.
Gilfond says he expects more tier 1 and tier 2
deals in latin america, as investors still find the
region an attractive investment destination: "in that
environment, with low rates, investors welcome the
opportunity to look at and evaluate new structures that
pay them for the subordination that these securities
have."
Since 2012, however, regional subordinated
debt issuance has been thin. only five banks issued
internationally marketed subordinated debt between
January 2013 and the end of the first quarter of 2014,
according to Dealogic.
in January, Banco de crédito del Perú became the
first such issuer in 2014, reopening its $520 million
2027 fixed to floating rate subordinated bond, and
adding $200 million to the transaction. it first sold the
bond in april 2012 and increased it by $170 million a
year later.
Basel iii regulations have not yet been handed down
from the regulator in Peru, but Bruno Zapata, BcP's
head of financial management, says the bank has
already adopted capital ratios that are consistent with

Basel iii standards. "We considered those
re-openings to be the more efficient way to
fulfill our tier 2 capital needs," he says.
mexico was the first in the region to
fully implement the Basel iii framework,
on January 1, 2013. on December 18,
Santander méxico raised $1.3 billion in
tier-2 notes.
Santander bought 75% of the sale, but
the publicly marketed portion of the
non-convertible 2023 subordinated note,
callable from 2018, gained $3 billion in
investor orders. the bond carries risk of
coupon deferral or principal write-down.

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LatinFinance - May/June 2014

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