April, 2001 - Moneda Asset Management: Outlook for Latin America Sovereigns

Invirtiendo en Deuda Latinoamericana Abril 2011

Agenda• Latin America Fundamentals • From a Macro Perspective • From a Corporate Perspective• Latin American Debt: Where’s the Value?• Technicals supporting Latin American Debt 2

The Rise of Latin AmericaChile 3

Latin America Macro Fundamentals: Over a Decade of Structural Changes in Latin America 1990’s 2010 Entrenched deficits Fiscal situation Balanced budgets allow fiscal stimulus US$50 billion International Reserves US$550 billion (net US$ creditor) Low Commodity Prices HighHigh and persistent inflation Inflation Under control: allows monetary stimulus High rates, short tenor Local Interest Rates Low rates allow for long term markets (mortgage credit) All junk except Chile Credit Ratings 80% of region is Investment Grade Limited capital markets Credit Markets Strong local issuance by governments and bank credit and corporates, strong bank lending 4

Latin America Macro Fundamentals: Stability has Boosted its Potential Growth Rate GDP, PPP Annual Index (IMF) Base 100 = 2003205 Higher growth mainly explained185 CAGR 2003 – 2009 LatAm: +6.4% by:165 LatAm145 US • Inflation Control EU125 • Political and Institutional105 CAGR 1980 – 2003 LatAm: +4.8% US: +4.2% Stability 85 65 • Developing Credit Markets US: +5.7% 45 • Better Commodity Prices 25 1980 1985 1990 1995 2000 2005 2010 2015Source: Cepal and OCD 5

Latin America Macro Fundamentals: Less Levered than Developed Markets Sovereign Debt/ GDP 80 70 60 50 40 30 20 10 0 Devoloped Economies Latin America 2000 2005 2010Source: Moody’s 6

Latin America Macro Fundamentals: LatAm Entered the Crisis with a Balanced Budget Fiscal Balance (% GDP) 4 Fiscal Balance 2 (% GDP) 0 -2 -4 -6 -8 LatAm -10 US -12 Euro Zone Japan -14 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source : Central Banks, FMI and Bloomberg 7

Latin America Macro Fundamentals: Inflation Under Control: Flexible Monetary Policy 45 40 CPI rate (%) 35 30 LatAm Nominal Interest Rate (%, weighted average) 25 20 15 10 5 0 1995 1997 1999 2001 2003 2005 2007 2009 2011ESource : Central Banks, The Economist, IMF 8

Latin America Macro Fundamentals: Countries Saved The Surpluses During Good Years Latin America FX Reserves and SWF (USD bn) 2010 Foreign Exchange Reserves 700 16% Argentina 600 14% Brazil SWF Chile 500 12% Chile SWF Brazil 400 % GDP Colombia 10% 300 Mexico 8% Peru 200 Venezuela 6% 100 LatAm 0 4% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 0% 10% 20% 30%Source: Official agencies of each country, Bloomberg 9

Latin American Debt: Where’s the Value? Sovereign Debt: Markets Have Recognized Better Credit Quality 2.500 S&P RATING EMBI+ Brazil 2000 Apr-2011 2.000 Argentina BB- B Brazil B+ BBB- EMBI+ Chile 1.500 (Global) Chile A- A+ Colombia BB BBB- 1.000 EMBI+ Mexico Mexico BB+ BBB Peru BB- BBB- 500 Venezuela B BB- 0 Dominican Republic B+ B 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Investment GradeSource: Bloomberg 10Data as of March 2011

Latin America Corporate Fundamentals: Improved Cash-flow and Decreasing Leverage LatAm: Revenue & EBITDA Performance LatAm: Revenue & EBITDA Performance 500 50% Revenues and EBITDA have mutiplied 400 40% by almost 4x 300 30% CAGR 2000-2010 200 20% - Revenues: 14.4% 100 10% - EBITDA : 13.6% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenues (LHS) EBITDA (LHS) EBITDA Margin (RHS) Indebtedness and Interest Coverage Ratio 4,5x 7,0x 4.2x Leverage has fallen all across the 3.8x 4,0x 3.7x 3.8x 3.7x 6,5x corporate universe 3,5x 3.3x 3.0x 6,0x 3,0x 2.9x 2.9x 2.9x Coverage ratios therefore have 2.7x 2.7x 2,5x 2.3x 5,5x improved 2.1x 2,0x 5,0x 1,5x Despite a brief spike in 2008/2009 4,5x 1,0x due to lower EBITDA generation, both 0,5x 4,0x sides of the equation are now improving. 0,0x 3,5x 2000 2002 2004 2006 2008 2010LTM 2011E Indebtedness Interest Coverage (RHS)Source: J.P. Morgan LEI Corp Index, Barclays Capital, Santander Investment, BTG Pactual, Bloomberg, GBM , Deustche Bank y J.P. Morgan and companies’ financial statementsNote: Revenue and EBITDA Performance based on Latam Large Cap; Leverage Ratio: Net Debt to EBITDA; Coverage Ratio: Interest Expenses to EBITDA 11Data as of December 2010

Latin America Corporate Fundamentals: Extension of Maturity profiles LatAm corporate debt maturities by yearUS$ billion 40 Issuers have focused on decreasing 35 30 leverage and on extending debt 25 maturities. 20 15 10 5 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021+ Change in corporate maturities over the last two yearsUS$ billion 30 Substantial decrease in debt 25 amortizations for next 5 years 20 15 10 Low default probability for LatAm 5 corporate issuers . 0 -5 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021+ Source: JPMorgan. 12

Latin America Corporate Fundamentals: Default rates near Historical Lows 2010 Default Forecast vs. Actual YTD and 2009 2011 Default 2010 Default 2009 Default Default rates in LatAmRegion Forecast Actual Default % Outstanding % high yield are forecasted at just 0.6% for 2011Total EM 0.5% 1.4% 4.0% 11.5%Asia 0.5% 0.4% 2.2% 11.0%Emerging Europe 0.4% 1.2% 8.5% 19.6%Latin America 0.6% 2.1% 3.1% 7.1%Middle East & Africa 0.9% 1.9% 1.0% 2.4% Historical Global vs. LatAm defaults While rising in 2009, 20% 18% default rates have 16% rapidly declined during 14% 2010 reverting to 12% 10% historically low levels 8% 6% 4% 2% 0% 9 -5 9 -6 -7 9 9 -8 -9 9 0 -0 0 -1 0 -2 0 -3 -4 0 -5 0 0 -6 -7 0 0 -8 0 -9 Global Latin AmericaSource: JPMorgan and Moody’s. 13

Latin America Corporate Fundamentals: Fundamentals - Credit Quality Fitch Global Corporate Finance rating actions by region: 3Q10(As % of Regional Ratings YTD) Rating Agencies have reflected this Region Downgraded Upgraded by providing more corporate Asia/Pacific 4.9 8.9 upgrades than downgrades Europe 8.7 7.8 Latin American and Caribbean 4.5 11.6 Middle East and Africa 2.3 2.3 North America 7.7 8.6 Total 7.1 8.3 LatAm issuers rating upgrades to downgrades+ (since 2009) 4.0 Clear improvements in credit 3.5 quality since 2Q09 3.0 2.5 2.0 1.5 1.0 0.5 - Jan-09 Jan-10 Nov-10 Upgrades to DowngradesSource: Global Corporate Rating Activity Report” published on Dec 1st, 2010 - JPM from Moody’s, S&P, and FitchNote: Number of upgrades and downgrades considers the aggregate of the 3 major rating agencies. 14

Latin American Debt: Where’s the Value? LatAm HY & IG in a Low Yield World Context Yield in LatAm HY Index at April’s month end = 7.7% Yield (in %) 9 7.7 7.9 8 7.3 7 6.1 6 5.6 5.6 5 3.9 4 3 1.9 2 1 0.1 0.3 0 3-month 3-month US Treasury US Inv EM Europe LatAm High Emerging US High LatAm High EUR High T-bills LIBOR Grade Corp Grade Market Debt Yield Yield Yield Credit In a low yield world, LatAm HY emerges as one the best yielding fixed income asset class Unclear economic recovery weakens equity while strengthens fixed incomeUS Treasury: Barclay’s U.S. Treasury Index; US Inv Grade Credit: Barclay’s U.S. Corp. Inv. Grade Index; US High Yield: Barclay’s U.S. Corp. High Yield Index; LatAm High Yield and High Grade: J.P. Morgan CEMBIBroad Latin High Yield and Investment Grade Index; EUR High Yield: Barclay’s Pan-European High Yield (Euro); Emerging Market Debt: J.P. Morgan EMBI+ Index. 15Note: Yield reflects the yield-to-maturity (YTM) for a bond or index. Data as of April 2011

Latin American Debt: Where’s the Value? LatAm HY vs. Developed Markets HY LatAm holds similar yields than the high yield universe, but with better credit quality and higher economic growth… LatAm HY U.S. HY EUR HY Leverage 2.9 3.8 3.9 Economic Growth 4.3% 2.7% 1.7% Rating BB- B+ BB- YTM 7.7% 7.3% 7.9% …LatAm deserves tighter yields than developed marketsLatAm HY: CEMBI Broad Latin HY Index ; US HY and EUR HY: Barclays US High Yield and EUR High Yield Indices.Leverage figures were computed by Moneda‘s Research Department taking individual companies’ Net Debt/EBITDA metrics that belong to each Index from Bloomberg data. GDP 16Growth figures are IMF estimates. Data as of April 2011.

Latin American Debt: Where’s the Value? LatAm I.G. vs. LatAm H.Y.: Spreads 1,800 1,600 Current levels of spreads still offer a 1,400 potential compression of 260 bps to 1,200 last bottom (203bps) 1,000 800 600 464 400 200 217 0 CEMBI Broad Latin America IG CEMBI Broad Latin America HY In the current global and regional 1,400 scenario, due to macro and credit 1,200 fundamentals, our estimations suggest 1,000 a compression of around 150bps for 800 the spread between High Yield and 600 Investment Grade credits… 400 247 200 0Source: JPMorgan CEMBI Broad Latin High Yield and Investment Grade Indices, since December 2005.Note: Spread according to average life of each index. Data as of April 2011. 17

Latin American Debt: Where’s the Value? EM Local Bond Market: Stellar Performance & Still Attractive Spreads Local bond market total return (USD) LatAm Sovereign bonds in local currency have had stellar returns versus other EM regions… Local bond market yields (% - Local Currency)* Although its stellar performance, it presents the highest spread among its EM regional peersSource: BAML Weekly Bond Monitor Report - April 17th, 2011 18

Latin American Debt: Where’s the Value? EM Local Bond Market: High local rates & FX appreciation Potential 22 20 Long Term Rates 18 High interest rates even despite: 16 Brazil 14 - Better public situations in LatAm 12 than in developed countries 10 Mexico Colombia 8 6 - Willingness to fight inflation 4 Chile 2 - Companies with better perspectives 0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 150 140 There is still room for currency Developed currencies vs USD 130 Index. Jan/00=100 appreciation: 120 110 - Rebalancing of the world economy 100 LatAm currencies vs USD Index. Jan/00=100 - Currencies have not yet returned to 90 pre-crisis level 80 70 60 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Central Banks, Bloomberg, IMF, JP Morgan. 19

Technicals supporting Latin American Debt Strategic demand for fixed income Global Portfolio Weightings Since the last crisis there has been a reallocation towards fixed income assets But cash is still at high levels Target allocations by US The strategic shift by pension funds pension funds managers into fixed income products represent a long term positive trend for global credit Asset liability mismatch magnified during the last crisis has increased the need for assets with better liability matching potential, such as fixed incomeSource: JPMorgan December 2010. FRB Flow of Funds, Haver, Barclays Capital 20

Conclusions• Macro Fundamentals Macro level: o Structural change: Balanced Budgets, commitment to maintain inflation under control o Sustainable growth driven by internal consumption and China• Corporate Fundamentals o Clear deleveraging and improved amortization profile in the LatAm universe o Outlook for default rates in the region close to its lowest historical level• Where’s the Value? o Local currency corporate and sovereign debt, and high yield corporate debt• Supportive technicals o Lat-Am is under-owned, allocation is still far relative to the role and weight of the region under different metrics o Inflows to the region mainly to hard currency sovereign debt o Institutional demand should gear towards fixed income and specifically towards the EM reallocation story 21

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April, 2001 - Moneda Asset Management: Outlook for Latin America Sovereigns

by Miguel Santos on May 06, 2011

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April, 2001 - Moneda Asset Management: Outlook for Latin America Sovereigns — Presentation Transcript