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Swiss francs offer relief as dollar bond market shuts 0

Jun 14, 2013

Borrowers from Latin America have sold $1.57 billion worth of debt in Swiss francs this year, a record total reached before the year is even half finished, according to Dealogic. The run of issuance is providing solace to high-grade borrowers who have found themselves locked out of the dollar market as investors flee emerging market assets.

Banco de Chile was the most recent borrower to hit the Swiss market, selling a 225 million Swiss franc ($243 million) on June 11. That followed the 125 million Swiss franc bond sold by Banco Santander Brasil on June 3 in a diversification bid that also pulled in attractive pricing - the bank priced through its own Swiss curve.

"Equities were a bit negative, but we have seen a strong Swiss franc market over the past weeks and decided to go ahead with a transaction," Alvaro Carbajosa, Santander Brasil's head of international funding, said at the time of his bank's deal.

Well-rated Latin borrowers are finding a ready investor base for transactions in Swiss francs. Volatility in US interest rates has pushed investors to offload dollar denominated bonds, particularly those from emerging markets.

Investors yanked $1.52 billion from emerging market debt funds and $3.99 billion from EM equity funds in the week to June 5, according to EPFR . Outflows from EM hard currency funds were the highest since the second quarter of 2007, according to EPFR. Cash left local currency funds for the first time since the third quarter of 2012.

"The Swiss franc market tends to be less volatile than others," says Dominique Kunz, managing director and head of Swiss DCM at Credit Suisse, which managed the Santander Brasil sale. "And it plays in our favor most times, though sometimes not."

'Nothing beats Swiss'

América Móvil in May clinched the lowest yet coupon for a LatAm issuer in the Swiss market, and likely the tightest-ever spread, in its fourth Swiss sale. The telecom reopened its 1.125%-coupon bond to yield 0.917%, or mid-swaps plus 47 basis points.

"If you want to issue five-year paper [for us] nothing would beat Switzerland," América Móvil CFO Carlos García Moreno says. He adds that five to six years is most efficient spot on the curve, with no value beyond that. This is due to the large presence of retail investors.

Other issuers this year have included Santander Chile, Corporación Andina de Fomento (CAF) and the Central American Bank for Economic Integration (Cabei).

Look out for in-depth discussion of the opportunities for Latin borrowers in the Swiss franc market in the July edition of LatinFinance magazine - online at www.latinfinance.com from June 28. 


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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management