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
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.
Jorge Errázuriz is vice-president of BTG Pactual
Chile. He was interviewed by Katie Llanos-Small.