In its U.S. market debut, Banco de Santiago, a Chilean bank, plans to issue $200 million in Yankee bonds in the next two weeks.
Foreign banks have been trying to borrow from a wider range of U.S. sources. Issuance of Yankee bonds-securities issued by foreign banks in U.S. capital markets-has been on the rise, particularly in June.
Foreign banks issued $18 billion of these kinds of securities in June, up from $4.4 billion in May, reported Securities Data Co. Analysts, however, expect issuance to drop significantly during the summer months, which bodes well for Banco de Santiago's deal.
The issue, led by UBS Securities Inc., is expected to price in mid-July. Price talk has it 95 to 100 basis points over comparable Treasury securities.
Bank bond analyst John B. Works of J.P. Morgan Securities Inc. said a unique feature of the deal could affect pricing.
"If there is central bank or regulatory intervention, these bonds would be treated as equity, which is lower than subordinated debt," said Mr. Works. "That wrinkle in the deal will be reflected in the spreads."
Bank bond analyst Katharine Rossow of Chase Securities Inc. said the issue is likely to be popular, because of the Chilean bank's strong fundamentals, its investment-grade rating, and its size-$10 billion in assets.
"Banks in Chile also have a rigorous regulatory environment," added Ms. Rossow. "If you buy the Latin American banks, Chile is the safest place to be."
Banco de Santiago's deal could be just the "tip of the iceberg" of Latin banks issuing subordinated debt in the U.S. capital markets, said Mr. Works. He expects Banco Santander-another Chilean bank-to issue debt sometime this year. Banks in Brazil, Mexico, and Argentina are likely to follow over the long term.
In other Yankee bond news, spreads on bonds issued by Thai banks tightened dramatically on Wednesday-by 20 to 25 basis points-on news that Thailand was devaluing its currency, which fell by 18%.
Analysts said the devaluation would weaken the asset quality of the banks, which could make it more difficult for them to pay their bondholders.
Mr. Works said the tightening of the spreads-which means investors are buying-was more of a relief rally.
Spreads on Thai bank Yankee bonds were weak for the "better part of the last two months" as investors speculated about the devaluation, he said.