Tokyo Express: Bringing Latin American banks to Asian debt markets

Friday, September 23, 2011

The growing connection between Asia and Latin America is one of the major themes of the global economy. The two regions are currently registering the fastest GDP growth rates in the world. As the developed markets continue to stagnate, Latin American financial institutions will increasingly look to the liquid Asian markets to fund their growth.

To talk about Asian investors' growing appetite for Latin American banking debt, BNamericas spoke to David Costa, regional loan syndication executive at one of Japan's biggest banking groups, Mizuho.

BNamericas: In 2009 you syndicated the first ever Asian loan for a Latin American bank. What has happened since?

Costa: In the past three years we have been doing at least five deals a year. Slowly the market is opening up for Latin American [company] names. So far we've just done financial institutions, and there's been a lot of interest from Asian banks to establish relationships with Latin American banks.

BNamericas: Where's the current demand coming from - multilateral organizations or commercial banks?

Costa: We have done a few deals for multilaterals such as [foreign trade bank] Bladex and [development bank] CAF, but also we see some financial institutions. We have already done two syndicated loans for [Brazil's] Banco Itaú, as well as Santander Brasil. In Chile, several banks have tapped the Asian demand such as Santander Chile, Banco de Chile and BCI.

Although it wasn't arranged by us, BCP in Peru has also taken an Asian loan. Clients like the higher-rated names, so basically we are talking about multilaterals and the top-tier financial institutions in each country. Once you go beyond the first two or three top banks, it gets very difficult to [generate] the required demand.

BNamericas: The big theme in Latin America at present is growing trade with Asia. Is it reasonable to expect these credit deals to grow in size and scope as the links between the regions increase?

Costa: Yes, there's some expectation that this will be the case. At the moment, because of what's going on in Europe and its effect globally, some Asian institutions are facing higher funding costs. The overall theme is there, but it may be affected or delayed, subject to what happens to Europe. If I tried to launch a syndication today, for example, it would be very difficult because of the funding costs. However, we expect this to be a temporary event.

BNamericas: How do you plan to continue to grow your Latin American business?

Costa: At some point we hope to be able to arrange some Asia syndications for corporate [businesses] as well. The only reason this hasn't happened so far is because the deals with Asia tend to be relatively small in size. We are talking about US$100mn-200mn deals, so for the top-tier corporates in Latin America this seems to be a relatively small amount. But if the demand continues to develop, eventually we expect to see some corporate names also tapping the market.

BNamericas: Are firms in the extractive industries the obvious initial candidates?

Costa: Yes, the companies that would be exporting to Asia would be the natural ones, such as those in the mining and oil sectors, for example. Basically, these are companies that have a lot of capex and are also potential buyers of Asian equipment. This is the typical way that banks work their lending - to corporates that purchase equipment from their core relationships in their home country.

BNamericas: Where are these syndicated Asian loans arranged?

Costa: We have distribution out of London, New York, Tokyo and Hong Kong. So depending on the customer, we may launch a global syndication. The first Asian loan deals were just distributed in Hong Kong, but more and more the Asian banks are building a presence in the Americas. But even though some Asian banks are now able to participate through their New York branches, many of the deals continue to require close coordination between our New York, Hong Kong and Tokyo offices.

There are a few banks in Asia who would consider BBB [rated company] names in Latin America.

Overall, an "Asian loan" has come to mean that it is mainly Asian financial institutions participating in the deal. For some of our larger transactions - like the US$630mn Banco Itaú deal, which was jointly arranged by Mizuho, BNPP and HSBC - we invited institutions from all over the world to participate. It's no longer limited to a particular region.

About David Costa

David Costa joined Mizuho's New York office in 2000 from German regional BayernLB, where he served as assistant VP. At present, he heads Latin America commercial lending business for the Japanese bank.

Costa holds a bachelor's degree in civil engineering from Brazil's Universidade Federal de Minas Gerais and an MBA from the University of Illinois, US.

About the company

Mizuho Corporate Bank has been a pioneer in syndicated Asian loans for Latin American institutions. Since 2009, the New York-branch of the Japanese banking giant has arranged some US$1.3bn worth of deals for the biggest financial names in Brazil, Chile and Panama.

As of March, Mizuho Financial Group had US$1.9tn in assets, making it one of the largest financial institutions in the world.