European banks test Chile salmon farms' choppy waters

By Felipe Iturrieta and Luc Cohen

SANTIAGO, Oct 12 (Reuters) - European banks are stepping up their financing of Chile's embattled salmon farmers, sensing a rebound from years of environmental catastrophes and disease that have left Santiago-listed lenders more wary of the sector.

Three of Chile's largest salmon producers - Pesquera Camanchaca, Australis Seafoods and Multiexport Foods - have announced debt refinancings involving Norway's DNB ASA and the Netherlands' Rabobank in recent weeks.

DNB is also advising Camanchaca on a possible listing on the Oslo stock exchange, in what would be the first Chilean IPO on the world's main seafood industry bourse.

Those deals mark a wider disruption in how Chile, the world's No. 2 salmon producer after Norway, is financed, as northern European banks have quietly overtaken local lenders, an analysis of company financial statements shows.

"The aquaculture and fisheries sector tends not to be an easy sector to bank," said Gorjan Nikolik, senior analyst for fishery, aquaculture and seafood at Rabobank in Utrecht. "It can get really scary to hear some of these negative dynamics and you could be easily discouraged."

DNB and Rabobank are betting that their deep expertise in seafood financing in Europe will allow them to successfully navigate the volatile, boom-and-bust Chilean salmon sector in a way that domestic banks, who have not created units focusing on the industry or hired specialist analysts, failed to do.

The European banks, which have been active in lending to the Chilean companies for years, have become the largest lenders to one company and substantially increased their share in loans to others, the analysis showed.

After suffering through years of damaging overproduction, debt restructurings and disease, Chile's salmon farmers have posted stronger earnings in recent quarters.

"The recovery of the industry makes it possible for us to be more active," said Anne Hvistendahl, head of seafood at DNB in Oslo. "Some of the banks that used to be there are not there, or at least they are not increasing, and some are even pulling out."

The industry is a significant employer in Chile's remote southern region, and important to the South American country's efforts to diversify its economy from its main export, copper.

But its growth has been uneven, with multiple crises decimating the sector in the past decade. A deadly virus known as ISA devastated output between 2007 and 2009, while an algal bloom last year killed 23 million fish, around 20 percent of the country's farmed salmon, and caused $800 million in lost production.

'MORE CONSERVATIVE'

DNB and Rabobank are stepping up to fill the void. Leading exporter Aquachile received less than a third of its $263 million in non-current loans from the two banks in 2013; by the second quarter of this year, they made up more than half of the company's $222 million in bank loans due in over a year.

During the same period, Banco Bilbao Vizcaya Argentaria Chile reduced its exposure to the company to $37 million from $71 million, while Itau Corpbanca has pulled out completely after lending over $20 million in 2013, financial statements show.

"We have been more conservative than the European banks," Banco de Chile general manager Eduardo Ebensperger told Reuters. Since 2013, the bank's outstanding non-current loans to Camanchaca have declined by $20 million, while it has reduced exposure to Aquachile by nearly $8 million.

"We want to wait until the companies consolidate themselves for a few years before returning to finance them on the terms we did before."

Rabobank and DNB are financing a $165 million credit to Camanchaca, which the company said in September would allow it to pay off other bank debts early.

The two will also extend a loan to Australis for the first time, joining Banco Santander-Chile to offer a $100 million, five-year credit.

The loans mark a bet on the sector's turnaround. Stricter regulations put in place last year to space farms further apart could help prevent the spread of disease.

At the same time, rising demand in the United States, Europe and China could bode well for prices, Nikolik said.

DNB has room to lend more to Chilean salmon farmers without being overexposed, said Jan Erik Gjerland, equity analyst at ABG Sundal Collier.

He added that the bank had weathered a disastrous slump in Norway's salmon industry in the early 2000s.

"They've learned their lesson," Gjerland said. (Reporting by Felipe Iturrieta and Luc Cohen in Santiago, Additional reporting by Terje Solsvik in Oslo, Editing by Christian Plumb and Rosalba O'Brien)

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