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The new tigers of South America

Rafael Berckholtz Velarde
The rapid economic growth of Colombia and Peru in the past years – the new tigers of South America – as recently described by the Wall Street Journal, combined with Chile, the more mature regional tiger, have sparked an emerging movement towards developing a regional capital market. The recent economic boom, especially in Colombia and Peru, a hunger for new capital to fund growth plans, and pension funds in these three countries with cash to invest have created the right conditions to foster what could be a powerful regional capital market force. Peru, Chile and Colombia share some of the same industries and are familiar with each other's economic histories; a path towards a regional market thus makes economic sense.

Issuers and investment banks are increasingly eyeing the three countries as a relevant market to raise capital. Local banks are beginning to think regionally. For instance, in 2011, Banco de Crédito del Perú acquired a 51% controlling stake in Correval and a 60.6% interest in the Chilean brokerage house IM Trust, forging ahead towards developing a regional investment bank. Similarly, in 2011, Munita Cruzat & Claro, a Chilean financial services company, acquired an interest in Seminario & Cía SAB, one of the largest brokers operating in the Lima Stock Exchange. These recent movements suggest that there are vast opportunities to exploit capital and investments regionally.

Interestingly, the recent influence of Chile and Colombia in Peru has triggered a new interest on debt offerings conducted under the cover of Regulation S of the US Securities Act of 1933. In the past, issuers in Chile have decoupled the 144A/Regulation S offerings and conducted debt offerings under the cover of Regulation S only, following the same disclosure standards of a typical 144A/Regulation S offering. Under these Regulation S offerings, issuers and investment banks have gone on roadshows outside the United States (in countries in Europe and elsewhere), presenting investors with deals that contain the same high-quality information that they would expect in a 144A/Regulation S offering. As a result, Regulation S offerings are being viewed as international offerings as a matter of market practice.

Legally, however, there are no disclosure standards imposed by Regulation S and issuers must only comply with local requirements. As a regional market in Peru, Chile and Colombia begins to emerge, the question for issuers, bankers and lawyers is what kind of legal, accounting and other corporate standards should be created for this market. There is a real opportunity to shape the so-called Regulation S model and apply it to the specific needs of Chile and the up and coming tigers of the region.

Rafael Berckholtz Velarde

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