LatinFinance - September/October 2015 - 66

Looking at a much broader picture of is
also mildly heartening. Overall, portfolio
flows, syndicated loans and M&A between
emerging markets, particularly in Latin
America and China, is increasing, says Sergio Schmukler, lead economist in the World
Bank's development research group.
However, that doesn't necessarily translate into greater use of the Chinese currency
for funding. "The dominant currencies are
still the dollar and euro, or local currency,"
says Schmukler. "The renminbi is used
much more in reserves, through currency swap arrangements between central
banks."
Showing face
Beyond renminbi issuances, Latin American credits are seeing increasing interest
from Asian investors in buying their debt.
"We have been actively seeking to increase Asian investment into our bonds
for some years," says Felpeto at CAF.
"Traditionally, it was less than 5%; today, I
would say it is 10% to 15%," he says of Asian
investor participation in CAF's benchmark
paper.
For CAF, two factors have driven this
growth. First, the bank conducts roadshows in Asia, visiting central banks and
sovereign wealth funds. Second, CAF's ratings upgrades since its renminbi issuance in
December 2012 has made it more attractive
to these investors. Fitch Ratings upgraded
CAF's long-term debt rating to AA- from A+
in March 2013.
Banco Santander Chile has also been
meeting accounts in the region. "As a
consequence of this, we have seen Asian
investors participating more often in our
international deals and our expectation is
to increase more and more that proportion," Muratore says.
Two-way street
More issuers may soon be arriving on the
other side of the Pacific, as major changes
that are part of China's gradual market
liberalization could result in increasing
numbers of foreign issuers within China.
The People's Bank of China and the
National Association of Financial Market
Institutional Investors, a Chinese markets
organization, are considering changes to
regulations that would allow supranationals
to issue debt - so-called panda bonds - in
China's onshore bond market and swap the
proceeds into foreign currency. The move
would mark a striking departure from the
onshore market currently, where proceeds

66 L ATINFINA NCE.COM - September/October 2015

MAGDALENA FORSTER
DEUTSCHE BANK

"CHINA IS
UNDERGOING A
REBALANCING OF
ITS GROWTH MODEL.
THE ECONOMY IS
GEARING FOR A
HIGHER SHARE OF
DOMESTIC
CONSUMPTION AND
SERVICES AND A
LOWER SHARE OF
INVESTMENT"

must remain in local currency and be spent
in China, thus repelling many potential
issuers.
"That would be a very interesting market for us," says Felpeto. "The size of the
market would be huge. That would be a
total game changer."
The domestic Chinese bond market, the
third largest in the world after the US and Japan in terms of bonds outstanding, dwarfs
the offshore market. In the first half of the
year, the Chinese onshore market had 35.89
trillion renminbi ($4.24 trillion), according to research from Goldman Sachs. The
offshore market clocked in, meanwhile, at
roughly $128.7 billion in the first quarter,
according to Standard & Poor's.
Another part of the May announcement
in Santiago was a 22 billion renminbi currency swap deal and the allocation of 5
billion renminbi of the Renminbi Qualified
Foreign Institutional Investor (RQFII) quota
system to Chile. The RQFII allows foreign
entities to buy stocks and bonds in China's

domestic onshore market with Chinese
currency. Strict thresholds remain regarding the percentage of a Chinese company
that a foreign entity is permitted to own,
however the RQFII quota is a first for Latin
America and the allocation may incentivize
regional investors to more closely consider
opportunities within China. Brazil signed a
190 billion renminbi ($30 billion) currency
swap line with China in 2013.
While Chile has a small population
compared to some other Latin American
countries, its powerful and sophisticated
pension funds are permitted to invest
up to 80% of their assets in international
markets. Much of that money is outsourced
to international managers, many of whom
know their way around China's domestic
markets.
"You would not imagine, yet, that many
Latin American institutional investors
would have renminbi in the portfolio," says
one banker. "But on the other hand, you
would imagine that given the close political
ties between China and Uruguay, Peru and
Brazil, those countries will have some reserves in renminbi." (See page 61 TKTK for
more discussion of Latin American investor
appetite for Chinese assets).  
Investment from China into Latin America is also expected to increase as China
seeks to grow investments and currency
reserves. Premier Li's South American tour
included a stop in Brazil, where he talked
of plans to invest up to $53 billion in infrastructure.
Aside from direct investment, Chinese
loans to Latin America in 2014 hit $22
billion - more than the World Bank and
the Inter-American Development Bank
combined - according to estimates from
think tank Inter-American Dialogue. The
same group estimates that Venezuela has
received $56.3 billion of lending or investment from China since 2007.
"It's not just about China wanting to sell
more," says Schmukler at the World Bank.
"Another part is China wanting to be there
investing, wanting to diversify, or trying to
get the resources that they might need for
the future."
China's willingness to leverage its domestic and international heft is indisputable,
however, its schedule and strategy for
doing so remains largely ambiguous. While
Latin America, along with the rest of the
world, is not immune to China's whims,
ample financing options abound while it
waits for the optimal signals from the giant
across the sea. LF
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