NEW YORK, March 7 (IFR) - The flood of Chilean Swiss franc
bank deals may be reaching a saturation point, but there is room
for other Latin credits seeking arbitrage advantages and
diversity in a market still offering attractive pricing versus
dollar and local currency funding.
At a time when the dollar sector has come to a virtual
standstill, Swiss franc deals continue unabated with Chile's
Banco BICE becoming the latest Latin American credit to
join the queue as it prepares to debut in the currency after
mandating Deutsche Bank and UBS.
This year has already seen Latin American borrowers raise
CHF1.4bn (USD1.57bn) in the currency and more could be on the
way if cost advantages remain in issuers' favour.
Chilean banks have largely taken centre-stage, partly due to
the country's single A rating - the highest in Latin America.
This brings greater comfort levels to conservative investors
seeking a pick-up to European comps.
For instance, Santander Chile, rated Aa3 by Moody's
and A+ by Fitch, raised CHF300m in January through a 3.5-year at
mid-swaps plus 68bp that still looks alluring against the
40bp-45bp on bonds issued by similarly rated French banks.
"Investors recognized Santander in the name, but it was from
Chile, which, on a sovereign level, has a high rating and its
economy is doing well," said Slaven Maligec, head of Swiss
syndicate at BNP Paribas. "I doubt Santander Spain could achieve
this pricing and size."
BIGGEST FUNDING SOURCE
Top-rated supra-nationals like CAF and Cabei, as well
several Chilean banks, also benefit from having their paper
qualifying for use in the repo market, attracting treasury
demand in the process, said a banker.
For Banco de Chile, rated Aa3 by Moody's and A+ by S&P, the
Swiss market has become its largest funding source in the
international market, having raised more than CHF1bn (USD1.2bn)
over the years.
By tapping this niche market, the bank has not only achieved
more competitive funding costs than it would have realised in
the dollar market, but it has also seen yields tighten along its
local curve after it demonstrated that it had access to other
"We found that the cost of the cross currency from Swiss
francs to local currency is in line with our local benchmark
here," said Sergio Karlezi, head of treasury at Banco de Chile.
The five-year cross-currency swap to go from Swiss francs to
dollars is now back down to 25bp from 50bp last year, but
nowhere near the zero costs seen in 2008, Maligec said.
"Cross currency is the main driver," said Maligec.
"Historically, it is still poor, but it has improved from the
ugly levels of last year."
LatAm banks have also taken a shine to the Swiss market as
they can avoid the larger size thresholds required in a dollar
market, which typically demands a premium for smaller illiquid
This works to the benefit of many issuers that have limited
funding needs, but still want to diversify their investor bases
in tenors unavailable in dollars.
"The market is very flexible," said Marcelo Delmar, managing
director of Latin America debt capital markets at BNP Paribas.
"You can do odd maturities that fit into amortization profiles.
The dollar market is like going to McDonald's. There is a menu
of five, seven and 10 years and nothing in between."
Momentum may be fading somewhat as Swiss buyers suffer some
indigestion after gorging on Chilean names, but bankers believe
that other issuers from top-notch LatAm sovereigns could find a
welcome reception in Switzerland.
This is especially true of Mexican issuers that saw Moody's
upgrade their country to A3 earlier this is year. "We have seen
America Movil and Pemex tap this market, but no financials yet,"
said a banker. "I wouldn't be surprised if we saw one soon."