We started Celfin from nothing in 1988. With Salomon Brothers, we listed the first Latin American country fund on the New York Stock Exchange. The New York exchange and the Latin American ones were totally separate at that time. So what we did was revolutionary in creating the Chile Country Fund – a closed fund that exists to this day – that invested in Chilean shares.
Jorge Errázuriz: The birth of a market
The growth of private pension funds in Latin America has been the single most significant development for the region’s capital markets, says Celfin Captial founder Jorge Errázuriz
That was the first international connection between the NYSE and the Chilean stock exchange. Our next step was in 1990, when we listed the first Latin American company on the NYSE through an American Depositary Receipt format.
There hadn’t been any Latin American company listing on the NYSE since the 1960s. It was for the telephone company. Today it’s Telefónica, but at the time it was part of an Australian company called Bond.
They needed to raise at least $50 million. We’re talking about a sum that today seems pretty small. It needed $50 million for investment projects, and the controlling shareholder wasn’t allowed to put the money in because there was a limit.
But in Chile it was impossible to do a $50 million listing in 1990. So that led on to the idea of listing on the NYSE, which meant changing the law and working on issues such as capital gains tax.
From there, a whole wave of capital inflows started. In Chile’s case, many more companies listed on the New York exchange. And then there were Colombian, Peruvian and Brazilian firms that used the ADR format. Since then everything has changed. In Chile it’s possible to raise $500 million, to do $1 billion, where the international placement is marginal – it could be 20% – where the pricing is local, where the liquidity is local, where international accounts invest directly in Chile and where, most importantly, the savings are in Latin America.
In 1990 we looked to New York and London as sources of capital. Today we can look internally, at Chile, Peru, Colombia and Brazil. There’s a lot of long-term capital, coming from pension funds that are able to finance local investment projects, capital raisings and bond issues.
And now we are integrating Latin America’s financial markets. That raises the question as to whether the North American investment banks are needed any more. The truth is they’re not: they are complementary. That’s where the tie-up between Celfin and BTG Pactual came from. We have integrated with them creating a Latin American investment bank, for Latin America, with the ability to sell bonds in Latin America, in the US, in Europe and in Asia. An integrated bond and equity market is starting to be built. What’s still needed is an instrument to be offered publicly – a bond, a share, or another security – that can be sold in Chile, and automatically registered as a public offering in the other markets. That’s what we are going to move forward, with the authorities, and with other stakeholders.
The next step is financial integration of the Latin American capital markets. What’s needed is greater homogenization of the accounting and tax rules as well as the custodial processes. If in one country they settle in T plus two days, then everyone needs to have the same rules. So if another settles in T plus three, then it’s a problem.
We need the same playing field. Intuitively, it’s logical and simple: the same ball, the same rules. The difficulty comes when there are differences in the tax rules, which complicates things because that requires government and parliamentary input. But if there is political will, then this project to integrate our bond and equity markets will go forward. And there is political will among these four countries. LF
Jorge Errázuriz is vice-president of BTG Pactual Chile. He was interviewed by Katie Llanos-Small.