Latin Finance - April 2008 - 30

Caribbean dominican capital markets DR Peso Funding Evolves by Ben Miller fter the bank bailout and subsequent peso collapse in 20022003, it could be said that the Dominican Republic’s economy and markets had nowhere to go but up. And up they have jumped, spurred by average GDP growth rates near 9% for the last three years. Since then, banks, utilities, and other companies have started to dip their toes into shallow Dominican market waters. Banking and securities authorities redrew the rules, implementing strict, modern codes for broker-dealers and public issuers. Now, with international funds hard to come by, a few issuers are attempting to bring peso bond offerings that could each be worth more than $100 million. Cerveceria Nacional Dominicana, producer of the iconic Presidente brand, is brewing an issue of up to 4.5 billion pesos ($133 million) in five-year notes to be placed by domestic banks Banco León, Banco BHD and Banco Popular Dominicano. The idea is to swap out of dollars into more cost-effective peso debt, explains Eduardo Curiel, financial planning coordinator at CND. He adds that the Dominican market has reached a point where it has depth and stability for transactions like this. The fact that the brewer can plan a deal of that size is a testament to both troubles in the international markets and recent macro strength at home. “Having a company like CND, a national symbol, come to market gives the whole system credit,” says Darys Estrella, CEO of the Bolsa de Valores. “It shows the process works. A few years ago, there was just commercial paper. Now there are maturities of five and 10 years. We want to see 20, but it’s improving.” A Dominican Republic peso debt markets have become a solid funding option for corporates. The main challenges are diversifying the investor base and bringing out new products. Trading in debt securities has increased significantly since 2006. “From the perspective of Dominican companies, the situation in the international markets may be working in their favor,” Ng says. “Companies who consider issuing debt externally have realized that in the current crisis, doing local issues will help strengthen our markets.” This has likely played a role in the decisions of CND and other issuers preparing transactions expected this quarter. A bond financing supporting the Boulevard Turístico Atlantico (BTA) road project – crucial to reaching tourist developments on the Dominican coast – is being analyzed that could reach $130 million equivalent. Indústrias Nacionales, a 60 year-old building materials producer 49% owned by Brazil’s Gerdau, priced a 1 billion peso seven-year bond in March at 9.27%. Both have been approved by the Superintendencia de Valores, but for most issuers, this is only the first hurdle. As the country’s investor base is still small, big issuers need to tap into the 50 billion pesos controlled by the country’s pension funds. To sell to them, each offering must be approved by the Sipen pensions Superintendencia. Sipen is under pressure to make sure the investment is safe, and the speed and clarity of its approval system has been subject to criticism. “The approval process needs to improve because the capital market is a market of time,” says Ng. “There needs to be a faster process.” Diego Torres, vice president and general manager at Banco BHD, cites BTA, whose bonds feature a government guarantee to support the rating. The debt is still waiting for Sipen approval. However, as the amount of government backing increases, so does the profile of government risk, which could become too great for the pensions’ taste. “[Sipen] was created as a gate keeper, but has taken on a political role without asking for it,” Torres says. “The market will be able to grow without relying on the pension funds,” counters Benito Abad, director of investment control at Sipen. Although all issuers want to sell to the pension funds, he says, they represent only a section of the overall market, which offers many other possibilities. “Like any investor, we won’t be investing in everything.” LF Local Safe Haven The first round of new debt issues on the corporate side appeared in 2005, led by banks and utilities. Banco Popular Dominicano, one of the two biggest non-government banks, brought a 4.1 billion peso 9.02% coupon 10-year subordinated issue in December 2007. The volume growth during this time has been staggering. In 2007, the Dominican debt markets saw a leap of 320%, to 12 billion pesos in issues approved, from 3.2 billion in 2006, according to the Superintendencia de Valores. In the first two months of 2008, the Bolsa saw 8.2 billion pesos in debt transactions. The 2007 boom is mostly owed to a change in regulation that allows the central bank’s debt to be traded in the secondary market, says Haivanjoe Ng, the securities superintendent. For more on DR peso corporate debt see www.latinfinance.com 30 LATINFINANCE April 2008

http://www.latinfinance.com

Latin Finance - April 2008

Table of Contents for the Digital Edition of Latin Finance - April 2008