‘Scorched Earth’ Argentina Is LarrainVial's Next Target

  • Chilean firm has applied for a brokerage license in the nation
  • Firm aims to gain from $117 billion funds declared in amnesty

LarrainVial, Chile’s largest securities brokerage firm, is looking to open an office in Argentina as soon as this year on optimism President Mauricio Macri’s administration will continue to resuscitate the country’s moribund capitals market.

After more than a decade of exchange controls and isolation from global capital markets, the government has opened the nation to foreign investors again and used amnesty to lead Argentines to declare $117 billion in funds. LarrainVial is looking to help channel some of those funds into investments, said Fernando Larrain, the company’s chief executive officer.

"It’s difficult to over-estimate the level of destruction in Argentina” following a decade of capital controls and state-intervention, Larrain said in an interview at Bloomberg’s office in Santiago last week. “It’s a case of scorched earth. Argentina is an opportunity for companies like us."

Many of LarrainVial’s institutional clients are demanding products from and a presence in South America’s second largest economy as it emerges from recession and re-enters global capital markets. Companies in Argentina are entering a new "virtuous cycle," with recent debt sales likely to be followed by capital increases, which may in turn lead to stronger balance sheets and new bond emissions, Larrain explained.

Shares in Argentina’s benchmark stock index are trading at 9 times forward earnings, compared with 17 in Chile. Argentina’s market capitalization of about $81 billion is equivalent to 8.5 percent of gross domestic product, compared with Chile’s market cap of $236 billion, or 74 percent of GDP.

With that potential for growth in mind, LarrainVial is in the process of obtaining a brokerage license, which should be approved very soon, Larrain said. The office will be headed by Sebastian Caronni, an Argentine national and partner at the firm, who previously worked at Banco Santander SA.

LarrainVial will initially focus on selling fixed income products among investors, before diversifying into stocks and currencies, Caronni said in a separate interview in Santiago. The firm has already participated in some corporate bond sales by Argentine companies such as Vicentin SAIC, Banco de Galicia y Buenos Aires SA and Generacion Mediterranea SA, where it assisted lead managers to find buyers among Chilean and global investors.

The firm’s goal is to be among the top 3 to 5 players in a few years, which would require reaching market share of about 4 to 5 percent, Caronni said.

LarrainVial is not alone in its move to attract funds from the government amnesty plan. Itau Unibanco Holding SA, UBS Group AG, Julius Baer Group Ltd. and BTG Pactual Group are among other banks considering expanding or opening a wealth-management business in Argentina. Local firms including BBVA Banco Frances SA have also said they will seek to increase their investment options.

Argentina’s government, provinces and companies sold about $35 billion in foreign debt since March 2016. The country also saw its first international initial public offering in two years last May, when financial services company Grupo Supervielle SA raised $280 million in New York and Buenos Aires. Since then, two more companies, Havanna Holding SA and SA San Miguel AGICI, have sold shares locally.

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