Falabella has become the first corporate to issue a Chilean
peso-denominated bond cross-border;
DTCC only clears dollars, an exchange mechanism in the bond
documents sees the issuer transfer dollars but leaves
investors with the currency risk;
closely-correlated currencies is spurring the development of
a cross-border, local-currency bond market among LatAm
issuers and investors.
first cross-border, local-currency bond by a Chilean corporate
shows that LatAm issuers can benefit from the long-tenors
available in the international markets, without currency
bonds’ popularity with investors from elsewhere in
LatAm, combined with the region’s liquidity and
closely correlated currencies, signals the development of a
regional local-currency bond market.
April 30 deal saw retailer
US dollar notes and
Ch$94.6 billion ($200 million)
Chilean peso notes. The
peso-denominated tranche is a breakthrough for the
region’s corporates, which have struggled to tap
international liquidity in their operating currency.
is a dream come true," said Conrado Tenaglia, co-managing
partner of Linklaters in the US, who acted for the issuer.
"Even in a well performing economy like Chile, history shows
that mismatches between the currency in which debt is
denominated and the currency in which you make your money has
been the Achilles heel for many issuers."
pesos can be raised in Chile’s domestic market, it
can’t support the volume or tenors offered through
an international deal. Local bonds usually have a tenor of
three years, sometimes going up to four years.
10-year notes have the longest maturity of any peso-denominated
deal’s structural novelty concerns
notes were cleared through the Depository Trust & Clearing
and then Euroclear
exchange mechanism was needed to account for the fact DTCC only
such, although the note is denominated in Chilean pesos,
interest and principal payments are to be paid in dollars,
based on an exchange rate stated in the bond’s
terms & conditions.
each payment date, the conversion agent calculates the amount
in dollars based on the set exchange rate, and the issuer
transfers the amount in dollars. It overcomes the clearing
issue, but leaves the investors with the currency
LatAm bond market
deal was roadshowed in the US, Europe and LatAm, but IFLR understands the majority of the peso tranche
was placed in the LatAm region.
LatAm investors, the exchange risk involved in buying
local-currency bonds from their neighbours is not as great as
it is for those further afield.
is a strong appetite among these investors as there is a sense
that some of these currencies will be more strongly linked,
more closely correlated to each other, than with the US
dollar," said Tenaglia.
to the situation in Europe before the euro was introduced,
there is growing potential for corporates and sovereigns from
LatAm’s strongest economies to issue
local-currency bonds overseas.
have been other examples in the region, and if you look at
Peru, Colombia and Mexico, this is eventually the direction the
markets are going," said Tenaglia.
consistent with the region’s growing liquidity,
especially among its pension funds. "A mandatory stop for any
roadshow in the region is Santiago – and also possibly
Lima and Bogota. Even five years ago, this would have been
unthinkable," Tenaglia added.
and European investment in this deal shows that the new market
would be boosted by non-regional speculative
shows the risk appetite from non-regional investors who are
playing the local currency game; trying to take advantage of
those currencies’ noticeable appreciation against
the US dollar," Tenaglia added.
high coupon that would attach to these sort of deals is another
incentive. Falabella’s peso notes have a coupon of
6.50%, compared to 3.75% for its dollar notes.
April 30, Falabella closed its debut international bond
offering of $500 million 3.75% notes due 2023 and Ch$94. 6
billion 6.50% notes due 2023.
and S&P rated both tranches BBB. S&P’s
ratings report is available
US dollar notes and
Chilean peso notes have
been listed on the Irish Stock Exchange's Global Exchange
issuer was advised by Linklaters, Palma Abogados and Lewin
& Cía. Underwriters
HSBC, Itau BBVA, Citi were represented by Cleary Gottlieb Steen
& Hamilton and Noguera Larrain & Dulanto.
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