27 May, 2020 Chile

Debt capital markets league table 2019: Chile

Banking, Finance and Capital Markets

In the latest of a series of debt capital markets league tables, we present our findings for Chile. Morales & Besa had the highest combined deal value of any Chilean law firm in 2019 and it also worked on the most debt transactions along with Prieto, according to Latin Lawyer’s data.

Our findings, based on deals that took place in 2019 and submitted by law firms to Latin Lawyer, show that Morales & Besa steered nine transactions worth a combined US$7.5 billion.

Thirteen Chilean firms helped close 45 debt capital markets deals worth US$18.7 billion in 2019, our data shows.

Based on deals submitted to Latin Lawyer, Morales & Besa and Prieto steered nine transactions each. Carey and Barros & Errázuriz Abogados were close behind with eight deals respectively while Philippi Prietocarrizosa Ferrero DU & Uría (Chile) closed four transactions.

While Morales & Besa also scored the highest deal value, it was closely followed by PPU, which worked on transactions worth US$6.9 billion. Carey came third with a combined US$4.3 billion, followed by Claro & Cía on US$1.3 billion.

The largest debt deal by any Chilean company in 2019 was state-owned mining company Codelco’s US$2 billion issuance, according to Latin Lawyer’s data. The leading copper producer relied on Chile’s Carey and international firm Cleary Gottlieb Steen & Hamilton LLP for the deal, which took place amid plummeting copper prices due to the US-China trade war. PPU and Davis Polk & Wardwell LLP advised the banks. Codelco used the proceeds to transform and upgrade several of its mines.

Carey partner Francisco Ugarte explains that a rise in issuers spending big on Chile’s capital markets can be attributed to an attractive combination of low interest rates, increased liquidity and high investment demand. “An adequate market depth, good liquidity and somewhat reduced bank-lending capacity explain why the capital markets in Chile continues to be a popular alternative to other sources of credit,” he adds.

In June, Chile’s Central Bank reduced its benchmark interest rate to 2.5% – the lowest in over a decade. Exceptionally low rates attract more issuers to the debt markets to raise capital, allowing them to benefit from market flexibility. “Issuers are looking for more flexible and faster financing alternatives in the market, which is normally provided by bonds as opposed to bank financing,” suggests Claro & Cía partner Jose Luís Ambrosy.

Chile’s relatively strong 2019 was abruptly interrupted by a turbulent final quarter. In October, violent protests over high costs of living and inequality broke out across the country, triggering an economic slump. The country’s GDP contracted 2.1% in the final three months of the year.

Issuers were met with a rude awakening by political turmoil that erupted almost overnight, prompting many investors and shareholders to take their money elsewhere as doubts were raised over Chile’s previously stable economy. “Large corporations resorted to international placements and offshore financings” in the face of this political tension, explains Carey’s Ugarte.

“The Chilean capital market in 2019 has been one of the most active and challenging years of them all,” reflects Claro & Cía partner Ambrosy. It was also one of the most versatile. The market has shifted from plain, “vanilla” transactions towards more innovative alternatives such as social, green and hybrid bond offerings, he notes.

Chile made history when the government issued Latin America’s first ever green sovereign bonds. Morales & Besa and Shearman & Sterling LLP helped Chile raise some US$2.4 billion through two separate transactions in July and June. PPU and Cleary Gottlieb Steen and Hamilton LLP advised the underwriters in the deals, which scored a record of US$11.2 billion in investment demand at historically low interest rates. The proceeds were set aside for environmental projects, as part of the country’s initiative to combat climate change.

The successful first issuance of green bonds by Chile in 2019 set the route to the sovereign’s second round of green bonds issuances, worth a total of US$3.8 billion, in January 2020 (this transaction is not included in Latin Lawyer’s 2019 data). “The Chilean government has assumed a firm commitment to environmental matters, and it would therefore be expected that issuances of green bonds will continue throughout 2020,” outlines PPU partner Marcelo Armas.

Investors too are increasingly looking to inject their funds into sustainable investments. “Investors appreciate the additional advantage of being able to finance green projects that are also capable of granting attractive yields,” explains Prieto partner Patricio Prieto. “Green bond issuances will continue to be in demand and there are increasing numbers of issuers looking for a more environmentally conscious development,” he adds.

Though, just as Chile’s market began to bounce back from the economic downturn and social unrest of late 2019, 2020 threw another spanner in the works in the form of covid-19. The challenges of the unprecedented pandemic are met by concerns that a second wave of political tension has begun to simmer in the country, causing further financial uncertainty. “Both politics and covid-19 make it very difficult to foresee the short-term performance of our capital market,” says Prieto.

The recent outbreak of covid-19 has also raised question marks over whether Chile’s financial regulator (CMF) will make it harder for companies to issue debt in the market. “In the next few months we may see the government rethinking regulations and reevaluating the systematic risks as a result of large macro events such as covid-19,” says Carey’s Ugarte. This means that the risk and capital requirements that companies need to meet to make issuances may be raised, making it more difficult for companies to issue debt, while also maintaining their profitability levels. As a result, state-backed banks may become more important in debt capital markets deals, adds Ugarte.

Despite uncertainty, Chile’s debt capital market has so far remained active, says Claro & Cía partner Ambrosy. Although less deals are closing in the market, issuers are seeking financial solutions to maintain cashflow and write off existing debt in preparation for the consequences of the unprecedented crisis, he explains.

Green and social bonds continue to be a popular trend that keeps attracting investors even during economic uncertainty. “It is impossible to accurately anticipate the potential implications of covid-19 to the local capital market. Nevertheless, green bonds issuances and investor demand should remain strong,” remarks Carey’s Ugarte.

To see all Chilean debt capital markets deals that took place between July and December in 2019 and were submitted to Latin Lawyer, click here. To find information about deals that occurred during the first half of 2019, follow links here for January-February; March-April and May-June. To read our methodology for Latin Lawyer’s transactional league tables, click here.

Latin Lawyer previously published debt capital markets league table for Argentina. We will continue reporting on our Latin Lawyer 2019 debt capital markets data in upcoming briefings.




Source: Latin Lawyer

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