Chile will seek to ease access to capital markets for foreign investors and authorize new financial instruments such as covered bonds to increase trading, Finance Minister Andres Velasco said.
A bill with the changes will be sent to Congress this week. The government wants to broaden tax breaks for foreigners, allow exchange-traded funds and promote investment in mutual funds and securitized debt. Rules on venture capital may also be eased along with help for smaller companies to access financing.
“Everything that encourages competition is good,” Velasco told reporters today in Santiago.
Velasco says he wants to position the country, which has $100 billion of assets under management, as a regional financial hub where foreign companies will be encouraged to list stocks and sell bonds in the local market. Chile should become an exporter of financial services, he said.
“Chile, being quite stable politically, having excellent economic management, highly educated and skilled employee base, they have a chance to do it.” said Roberto Lampl, a fund manager in The Hague for ING Investment Management, which oversees about $12 billion in emerging-market assets. “No other exchange in the region has done it.”
Velasco said he plans to make mutual funds tradable on the secondary market and introduce exchange-traded funds.
Foreign investors will be able to buy stakes in funds with holdings in Chile and abroad, and only pay tax on dividends from Chilean companies. The currently pay tax on all dividend income. To ease access to Chile by foreign fund managers and brokers, Velasco proposes removing quotas for employees that force finance companies to hire 85 percent of their specialist staff locally.
Bonds Sales
Companies will be able to sell international bonds in pesos — in the so-called offshore market — which they can’t do now. The goal is to make the Chilean peso a more widely traded international currency, Velasco said.
The Finance Ministry’s proposal would allow banks to sell covered bonds backed by a pool of mortgages. The new bonds will lower costs for banks financing home loans, Velasco said.
The ministry also plans to force local banks to offer standardized loans and mortgages to make it easier for consumers to compare products.
“Before you can compete internationally you must first have local competition,” Velasco said.
Corporate bond sales in Chile grew to a record in the first half of the year as foreign companies, including Mexico City- based America Movil SAB, the region’s biggest mobile phone company, tapped institutional investors such as pension funds.
Companies sold $3.2 billion of domestic bonds in the first half because domestic funding was cheaper than going abroad, the central bank said in a July report.
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