Like many Latin American corporates, giant Chilean food processor Agrosuper has turned to debt for financing until turbulence from Europe's debt crisis eases and it can thaw out IPO plans in the deep freeze. Companies in Chile and Peru are cashing in on well-received sovereign debt sales that paved the way for low yields. Bond issues remain popular in Mexico and Brazil, but for different reasons.
With the uncertain outlook for the global economy keeping initial public offerings on hold, Chile expects another year with over $4 billion in corporate bond sales, half of which are already approved and ready to go in the first half of 2012. Only four of 10 Chilean companies that had planned to make a debut on the local bourse last year actually did, as the euro zone's debt crisis took the wind out of global equity markets.
"Of the companies that delayed their IPO plans, some might opt for other mechanisms, such as bonds," said Guillermo Tagle, head of brokerage IMTrust. Such was the case of Agrosuper, which after shelving a planned IPO that analysts said could raise up to $900 million, placed nearly $215 million worth of 21-year bonds denominated in inflation-indexed peso units, or UF, at the end of December.
"We still have intentions to debut on the bourse, but it depends on better market conditions prevailing. Today there's a lot of turbulence in international markets and we don't know when the situation might stabilize," said Felipe Fuenzalida, Chief Financial Officer at Agrosuper. Other corporates are expected to follow in its footsteps. "A lot of (corporate) debt was registered last year but never placed. If necessary I can do it immediately ... I have 40 million UF (some $1.835 billion) that I could place tomorrow," said Mauricio Rojas, a fixed-income trader at Banchile.
Alongside Agrosuper, Chilean retailers ABCdin and SMU, as well as industrial firm Indura, halted their own IPO processes and have registered with local authorities to issue bonds.
Increased restrictions on bank debt will likely prompt companies to diversify their financing sources, said Axel Christensen, head of BlackRock in South America. "Financing options will focus mainly on bond placements," said Christensen. In September, Chile's government successfully placed a $1 billion 10-year dollar sovereign bond in New York and reopened for a further $350 million a peso bond issued the previous year.
At the time, Finance Minister Felipe Larrain said the bond issue, which came on the heels of a $1.5 billion sovereign issue in 2010, was aimed at creating a benchmark to enable Chilean companies to access international credit markets. The yield of 3.3 percent was the lowest in Chile's debt issuance history since 1822, Larrain said at the time.