Chile set for burgeoning foreign-currency issuance
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Chile set for burgeoning foreign-currency issuance

Changes in domestic market conditions are making borrowing abroad the most attractive option for Chilean banks and corporates.

The road to the international capital markets will soon be well trodden by Chilean issuers. A combination of government policies, such as the foreign exchange intervention programme, and technical moves in the swap market, are driving this new interest in cross-border deals.

Chile’s borrowers have had an easy time in the local markets in recent years. Twelve months ago a well-developed $114 billion pension system provided borrowers with a willing investor, coupons have been low at an average of 3% to 4.5%, and swapping into dollars from Chilean pesos has been cheap – a year ago issuers could swap pesos into dollars at Libor minus 50 basis points.

This is no longer the case.

Two months ago an inflection point was reached – suddenly the pronounced advantage and relative attractiveness of domestic funding compared with external funding was inverted. The marked shift in spreads made swap rates for Chilean currency jump 130 basis points from an attractive Libor minus 50bp to Libor plus 80bp. In turn, this shift in spreads marked the end of the big arbitrage advantage that domestically funded Chilean borrowers had been enjoying for the past few years – now companies wanting dollar-denominated liability are also better off with cross-border deals.

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