Question

Describe and discuss an institutional void in the capital market of Chile.

Answer 1

The Chilean capital market is considered among the strongest in Latin America, but it lags behind when compared to other emerging economies around the world. Corporations’ need of capital varies over their life cycle, and the regulator should keep pace in offering the appropriate conditions for the market to be able to provide such financing to boost development and competitiveness in the economy. This chapter describes the Chilean capital market and aims at identifying perceived current barriers and constraints to its development. It concludes by discussing potential incentives and policy recommendations that could be implemented to spur greater participation in the Chilean capital markets.Chile’s capital markets are bursting with activity as a strengthening economy and the expected passage of a string of reforms boost appetite for a flurry of deals in the equity, mergers and acquisition (M&A) activity and bond markets. A window has popped open, says an IPO banker in Santiago, adding that last year’s successful, $533 million Mallplaza sale is boosting appetite for deals in the retail and consumer-goods sector. “There are several IPOs floating around.Consequently, investment bankers are tripping over themselves to underwrite equity offerings in the country where three bellwether firms—retail giant Cencosud, rival Vivo and Tecnofast—are widely expected to sell stock to fund their aggressive expansions at home and abroad. Already, the market has raised $329 million from equity sales so far this year, leading the region and trailing only behind Brazil, according to Dealogic. In 2018, IPOs and equity sales nearly doubled from 2017 to $3.6 billion. This year, they are expected to match or exceed those gains, according to bankers. The M&A market is also gaining traction, with several transactions in the mining, fisheries and retail sectors set to hit the market in coming months, according to Rafael Wilhelm, managing director of M&A boutique Banmerchant in Santiago. We demonstrate variation in the extent to which firms benefited from their affiliation with Chilean business groups in the 1988-96 period. The net benefits of unrelated diversification were positive if group diversification exceeded a threshold level, though this threshold increased with time. Sizable group benefits unrelated to diversification also existed, but they atrophied over time. We conjecture that the evolution of institutional context alters the value-creating potential of business groups, albeit slowly.Another important development refers to the streamlining of the registration process for mutual funds by means of deposit system akin to the one existing for insurance policies. This means that the relevant documentation of the fund may be marketed without waiting for it to be reviewed by the SVS. The regulator may however request that the fund shares cease to be marked if the documentation is found to infringe the law or regulations.