Latin America-China Investment Guide - 65

accepted as a currency for trade settlement,
then companies using it as a financing currency," says Tim Yip, head of cross-border
renminbi, debt capital markets, for Asia
Pacific at HSBC. "At the moment, there is an
overall acceptance from Europeans that the
renminbi could be used as a financing currency, and that is why we are seeing repeat
issuance from European multinationals."
Volkswagen, Bosch and Siemens are examples of such repeat borrowers.
Burned on the swap
Without the impetus of trade or direct investment, renminbi issuance could still be
attractive to a prospective Latin American
borrower, to diversify funding for example,
if they could engage in a favorable swap
back into the local currency. However,
spreads on relevant swaps have widened
over the past few years, making renminbi
issuance too expensive for issuers in the
region, who generally would aim to swap
into US dollars and then to local currency.
CAF launched a three-year 600 million
renminbi (US$95 million) deal through
Standard Chartered and HSBC in December
2012. The deal was twice oversubscribed
and widely considered a success. However,
the notes are set to mature this year and
there are no plans to refinance.
"We've always been keeping an eye on
the market," says CAF's Felpeto. "But the
size and the volatility in the swap market
has resulted in the after-swap cost rising.
We don't need the currency: we hedge back
these transactions into dollars, and the
swap has not been favorable for us."

Similarly, while Banco Santander Chile
sees its 2012 deal as a worthwhile exercise,
the lender also has no plans to return to
the dim sum market. "The experience was
great," says Muratore.
"We learned a lot about the local process
and our funding sources became much
more diversified... But the basis swap to
local currency has experienced a significant
deterioration, so in that sense, it is no longer attractive for us," says Muratore, adding
that borrowers have many other options to
consider for funding, and that a tight cost
of funding after swapping back to Chilean
pesos is the priority.
"Being a frequent issuer has given us
the chance to access the most competitive
markets at a certain time. Usually when one
geography is not attractive, there is another
one available and we take advantage of
that," Muratore says.
"The relevant comparison for us is
how the all-in yield in local currency looks
compared to the local funding alternatives. Even when we issue in the US, it has
to compare well against our local funding
alternatives."
Some bankers on the ground in Asia say
there's good reason for Latin American
borrowers to look at the economics anew.
"Dim sum bond issuance by international
names has picked up, taking advantage
of the higher offshore renminbi crosscurrency swap," says Frances Cheung, head
of rates strategy for Asia ex-Japan at Société
Générale.
Whether or not swaps become more
favorable and all-in pricing for renminbi

bonds improves for Latin American issuers,
activity from these borrowers in the dim
sum market will continue to remain low
without a corresponding increase in trade,
direct investment and operations in China.
Background noise
The fall in commodity prices and flagging
growth in China has diminished prospects
for many of these areas, including the inflows and use of Chinese currency in Latin
America. China has shifted away from what
appeared to be an insatiable appetite for
raw materials, from Latin American providers such as Vale or Petrobras, towards a
model based on domestic consumption.
"China is undergoing a rebalancing of
its growth model," explains Magdalena
Forster, global risk analyst on the emerging markets team at Deutsche Bank. "The
economy is gearing for a higher share of
domestic consumption and services and a
lower share of investment."
The composition of Chinese commodity
imports is likely to change as a result, with a
decrease in demand for base metals and oil,
and an increase for food and natural gas.
Latin America has been hit especially hard
by the decrease in commodities prices,
which is largely attributed to China's retraction. Brazil, Chile, Cuba, Peru, Uruguay and
Venezuela sell between 15% and 25% of their
exports, mostly metals and oil, to China and
are heavily exposed to China's economic
rebalancing. On the other hand, countries
such as Uruguay, that are exporters of soft
goods, such as food, may stand to benefit
from the changes in China, Forster says.

Fading presence
RMB bonds from LatAm issuers
Issuer

Pricing date

Tenor (years)

Size (USD, m)

Size (RMB, m)

Coupon (%)

3

130

800

4.8

HSBC

5

81

500

3.9

HSBC

3

80

500

3.2

Standard Chartered

3

159

1000

4.1

Standard Chartered, CITIC, BTG
Pactual

Mar-13

3

38

240

3.3

BNP Paribas

Jan-13

3

56

350

3.7

BNP Paribas

Dec-12

2

34

215

3.9

BNP Paribas

Dec-12

3

95

600

3.6

Standard Chartered, HSBC

Banco Bradesco

Nov-12

2

48

300

3.9

BNP Paribas

Banco Santander Chile

Nov-12

2

80

500

3.8

Standard Chartered, Deutsche
Bank

América Móvil

Feb-12

3

159

1000

3.5

HSBC

Cabei

Mar-15

Cabei

Oct-14

Cabei

Mar-13

Banco BTG Pactual

Mar-13

Banco BTG Pactual
Banco BTG Pactual
Banco BTG Pactual
CAF

Bookrunner

Source: Dealogic

September/October 2015 - L ATINFINA NCE.COM 65
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