Bond Traders Rejoice as Scandal-Plagued Chile Tycoon Plots Exit

  • SQM notes have returned twice emerging-market average in 2016
  • Ex-Chairman Ponce is selling controlling stake in SQM

As far as bond investors in Soc. Quimica & Minera de Chile SA are concerned, Julio Ponce can’t unload his controlling stake in the lithium producer fast enough.

Ponce resigned as chairman a year ago as the company faced allegations of unlawful political contributions and tax fraud. Before that, in September 2014, he was fined a record $70 million for enriching himself at the expense of other shareholders through a series of holding companies that control SQM. The company is also embroiled in a legal dispute over mining rights at its Salar deposit with the government, which has expressed a lack of trust in the management team Ponce put in place.

Bondholders are betting SQM is close to leaving behind this legacy of scandals and legal battles as Ponce, the former son-in-law of Chile’s one-time dictator Augusto Pinochet, moves to sell his stake in the holding company. There are now nine potential bidders, Pulso newspaper said in a March 21 report. With the prospect of a change of control getting closer, SQM’s $300 million of bonds due in 2023 have returned 9.2 percent this year, more than twice the average gain for investment-grade notes in emerging markets.

“A change of control will lower all of the noise with the company and could open the door to a possible solution for the fight over the Salar deposit,” said Pedro Pablo Larrain, the chief executive officer at Sartor Investments, a Santiago-based asset manager.

SQM declined to comment on the performance of its bonds, according to an e-mail from its external press-relations office. Ponce, 70, is appealing the fine regulators imposed on him. Chile’s peso weakened 0.7 percent Thursday to 679.14 per dollar as of 9:14 a.m. in New York.

SQM’s bonds due in 2023 and 2025 don’t have clauses that would require the company to buy back the securities if there is a change of control, said Jaime Achondo, a trader at Finanzas y Negocios SA.

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