LatinFinance - September/October 2015 - 64

CHINA
RMB BONDS

After years of scant interest from Latin American borrowers,
China is recalibrating its domestic and offshore markets and
piquing interest. By Chris Wright

Buying
opportunity

mérica Móvil's 1 billion renminbi ($158 million) three-year bond sale in the
Chinese offshore market in February 2012 was set to herald a wave of dim sum issues in the
Chinese currency from Latin American borrowers, and a flurry did indeed follow. Banco
Santander Chile raised 500 million renminbi ($74 million) in two-year paper later that year,
marking the first Latin American bank to tap the dim sum market. Development banks CAF
and Cabei also executed renminbi bonds, as did BTG Pactual and Banco Bradesco.
The activity has hardly amounted to the onslaught anticipated, however. Cabei's latest 800
million renminbi ($130 million) issuance this year was the only bond from a Latin American
borrower in 2015 and caps a miniscule market - less than $1 billion equivalent across 11 deals
since América Móvil's debut.
"At the time, we were expecting the size of transactions would increase gradually," says
Gabriel Felpeto, CAF's director of financial policy and international issuances in Venezuela.
"This has not happened. To be honest, maybe expectations were too high."
Chinese premier Li Keqiang's visit to Santiago in May, though, is among a host of reasons
giving bankers and borrowers cause to re-examine the potential of Latin America's relationship with China. During his trip, Li met with President Michelle Bachelet and named Santiago
as the first offshore renminbi hub in the region, and only the second in the Americas.
The People's Bank of China and Banco Central de Chile signed a memorandum of understanding to make China Construction Bank Chile the clearing bank for renminbi in the country, and perhaps elsewhere on the continent. "It is another relevant step in the process of
getting both countries closer," says Emiliano Muratore, managing director and head of asset
and liability management at Banco Santander Chile.
There are 17 offshore renminbi centers globally, and in many cases their appointment
has been followed by widespread issuance from banks and companies within those hosting
countries. Singapore, London, Frankfurt and Paris are examples, though the trend is not
universal. South Africa and Hungary have been granted the same status this year and have yet
to realize a significant amount of issuance.
The establishment of a center is not, in itself, enough to re-inforce the tenuous financial
thoroughfare between Latin America and China. Trade flows are a crucial part of encourag-

64 L ATINFINA NCE.COM - September/October 2015

ing the use of Chinese currency, and thus,
renminbi issuance. While the clearing
bank in Chile is partly intended to drive ties
between the two countries, market observers emphasize the need to establish the
underlying business case that encompasses
increased trade and direct investment
between China and Latin America.
The base case
Those nascent foundations of trade and
direct investment provide some insight in
to why Latin American issuers have largely
skirted renminbi bonds.
The América Móvil transaction reflects
a coincidence of interests that have yet to
prompt other corporate borrowers in the
region. The Mexican giant was increasingly
buying network equipment from Chinese
exporters, chiefly telecom group Huawei.
It eventually made sense for both sides to
pay Huawei in Chinese currency because it
reduced currency risk for the exporter, and
allowed América Móvil to negotiate better
terms on its Chinese purchases, notes a
banker who worked on the issuance. "But,
it's not every day you have an $80 billion
market cap company looking to issue debt
in China."
Issuances from other Latin American
corporate borrowers would only make
sense if the transactions were supporting
similar trade activity or direct investment
- such as M&A and opening businesses in
China - which remains rare.
"For the renminbi to become truly
internationalized it would need to go
through several phases: first being widely

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