Santiago, Chile, August 1, 2013. Banco Santander Chile today announced the successful placement of its first mortgage bond issued in Chile, with a value of UF 1,500,000 (US$67 million). The emission term is 15 years with a semi-annual repayment structure consisting of principal plus interest. The lending rate is 3.39% in real terms or 16 basis points below the cost of the Bank's senior bond levels. Santander Global Banking & Markets was the placement agent. The total demand reached almost 3,000,000 UF, doubling the available issuance and generating a 6 bps improvement over the rate of enrollment of this Dutch auction.
This is the first issuance in Chile under the new mortgage covered bond rules, created last year by the Central Bank and the SBIF. With these funds, the Bank must issue new mortgages within 18 months that fit the criteria demanded by the new regulations specifically: (i) the mortgage loan to value may not exceed 80% of the value of the mortgaged property at origination, (ii) the monthly mortgage payment of the client cannot exceed 25% of their income and (iii) the mortgage loans cannot be more than 10 months past due. The Bank must ensure that these ratios be complied with, throughout the life of the mortgage bond, replacing individual mortgages that violate these set conditions. The issuer must report monthly to the SBIF on the evolution of the loans tied to the bond.
This new funding mechanism has several advantages, both for the Bank and for the investors. For mortgage bond issuers, they provide a new tool for matching long-term assets with long-term liabilities. This product also promotes the growth of a healthier portfolio with better credit quality, lower default rates, which could favorably affect credit risk. Furthermore, these mortgage bonds reinstate an instrument of "secured funding" that was no longer being used in the Chilean market. Chile is now on par with other global financial systems that have been using this type of mortgage-backed bonds for some time now, as a source of funding.
According to Emiliano Muratore, Financial Manager of Santander Chile:
"We believe that today marks a milestone with the return of "secured funding" for the Chilean mortgage industry. We have successfully issued this mortgage-backed bond at an attractive spread. In addition, investors have a new investment product of the highest quality, supported by an issuer with among the best ratings in emerging markets supported by a low risk pool of mortgages. Hopefully more banks join us in this market, which in turn will be very beneficial for clients, issuers and investors"
According to Andres Bertens, Treasury Sales Manager of Santander Chile:
"The size and atomization of demand demonstrates the ability of distribution that Santander GBM has in the local market. We had an excellent distribution among pension fund managers, banks and mutual funds. We intend to continue to lead this type of innovative placements, which help to further develop capital markets in Chile."
Banco Santander Chile (Bsantander, BSAC) as of the June 30th, 2013 is the largest bank in Chile by assets (U.S. $ 50 000 mm) and equity (U.S. $ 4,200 million). The bank has 485 branches, 1,972 ATMs and 3.2 million customers. Santander Chile has a AAA local rating by Fitch and Feller-Rate. It also has one an international rating of A+ by Fitch, A by Standard and Poor's and Aa3 by Moody's. At the end of June 2013, the Bank had a core capital ratio of 10.2%. Banco Santander Chile trades on the Santiago Stock Exchange (Bsantander) and the New York Stock Exchange (BSAC). The largest shareholder is Grupo Santander Bank, which controls 67%.