Latin Finance - March/April 2012 - 56

Andean huaso market

Uphill Struggle
by Karen Schwartz antiago may have become an essential stop for many Latin American borrowers selling US dollar or other local currency bonds to large local institutional investors like pension funds. But efforts to broaden the credit spectrum of Chile’s domestic bond markets and integrate them with the outside world have been slower to succeed despite the implementation of more flexible regulations. There have been growing signs of interest in the so-called Huaso market designed to allow foreign entities to issue locally, with Mexican homebuilder GEO expressing its intention of tapping these instruments, and last year saw an unusual subinvestment grade Chilean retailer tap the domestic markets thanks to a growing demand from family offices. Yet recent regulatory changes designed to lure a broader range of foreign borrowers, including lower AD Retail becomes first BB+ credit to sell bonds in Chile grade credits, into the Huaso arena have failed to take off so far, leaving local fixed-income investors increasingly looking abroad for “We are undertaking this process to open windows to access diversity. Nor has an accounting scandal at retailer La Polar left financing,” Roberto Torres, the homebuilder’s head of capital the buy-side enamored with lower grade credits, dampening the markets, tells LatinFinance. prospects for the development of a domestic high-yield market. Though GEO is not yet planning a specific transaction, it sees Under the old Huaso regime only two borrowers had tapped opportunities available in the Chilean market, and if necessary, this market. Mexican telecom América Móvil completed two could use proceeds from a sale to refinance debt. An issue would such trades to date, while Peruvian bank BCP added a third. be swapped back into Mexican pesos. “We are confident that this Realizing that investment-grade names have access to a process [the swap] is simple and accessible,” Torres says. wide range of markets that probably offer cheaper forms of GEO, which has two BBB Chilean national ratings, as well as funding, local authorities turned their attention to adapting new being rated BB minus on an international scale, may be the kind regulations to attract middle-tier credits that don’t necessarily of issuer Chile would like to see. have access to larger US dollar markets but may find the options Despite Torres’ upbeat view, the additional costs incurred in Chile attractive. from what is often an illiquid cross-currency swap market could Mexico’s Corporación GEO, which has filed a $100 millionpotentially deter issuers from proceeding. According to Soledad equivalent bond shelf in Chile for a 10-year UF-denominated Ramírez, a corporate finance manager at Scotiabank in Chile, issue, in theory falls under this category. The company is unable the expense of a swap could make a local Chilean bond less to issue such lengthy maturities at home and this has led it to seek efficient versus, say, a dollar bond. other markets for longer tenors and more attractive funding costs. Still, there are other reasons for taking the Huaso route, adds

There are incipient signs that middle-tier companies, both foreign and local, are poised to tap Chile’s domestic bond market. But so far efforts to encourage this trend have failed.

56 LatinFinance

March/April 2012

Latin Finance - March/April 2012

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