PANAMA: An Introduction to Capital Markets
In part due to the heavy challenges imposed by the COVID-19 pandemic, among others, on the economy of the Republic of Panama, the main actors of the capital markets, the Superintendence of Capital Markets (hereinafter the “SMV”) and the Latin American Exchange (hereinafter “Latinex”) immediately rose to the challenge, adopting the necessary regulations that permitted the uninterrupted continuation of the regulatory proceedings typically administered by these entities. In other words, despite the strict lockdowns initially imposed during the beginning of the COVID-19 pandemic, which extended into 2021, business continued “as usual” in connection with capital markets activities.
During 2020, the SMV adopted several measures focused on being able to continue to operate and to service its users remotely, including, among others, (i) setting a general e-mail address to the public, through which clients could carry out registration proceedings, including sending information, documentation and exchanging communications with the SMV, instead of their physical filing, (ii) allowing payments to the SMV via wire transfers instead of the traditional certified or cashier’s checks, and (iii) allowing notifications of administrative acts issued by the SMV to be made via email.
Additionally, in January 2021 the SMV together with Latinex formally established a joint virtual window, which works as a “one-stop shop”, for the purpose of optimizing the registration process of securities with both entities, applicable for offerings in the primary and secondary markets, which led to significant improvements and efficiencies to the registration process.
The above measures adopted by the SMV and Latinex have proven to be extremely beneficial for the securities market of the Republic of Panama, since these have allowed all parties involved in securities-related proceedings to interact with each other and to undertake the typically cumbersome governmental proceedings in a much more client friendly and efficient manner.
In recent years capital markets offerings in Panama have become a very common source of financing for several types of companies, whether holding companies, operational, or special purpose vehicles, by way of issuing securities (such as bonds, commercial papers, shares, among others) registered with the SMV and placed through Latinex. Panamanian law provides for certain tax benefits for securities registered at the SMV and sold through Latinex, which make it an attractive source of financing for Panamanian companies.
Perhaps one of the most striking features of the SMV and Latinex in recent years is their assertiveness by quickly adopting regulations that allow critical matters to be addressed in a timely manner, among several others, (i) the issuance of Accord No. 3-2020, later replaced by Accord 7-2020, as amended, approving an abbreviated proceeding for the registration of amendments to the terms and conditions of public offerings already registered with the SMV, as part of the special and temporary measures adopted due to the State of National Emergency declared by the Cabinet Council as a consequence of COVID-19, (ii) the issuance of Accord No. 2-2021, as amended, approving a special and abbreviated proceeding for the registration of amendments to the terms and conditions of public offerings already registered with the SMV, but solely and exclusively in relation to the replacement of LIBOR as a reference rate and amendments to the applicable spread.
Both Accords mentioned above allowed the markets to address critical situations such as (i) issuers with registered public offering that, due to the COVID-19 pandemic, were practically forced to modify certain terms and conditions such as those related to capital and interest payments, due dates, and grace periods, in order to avoid potential defaults, and (ii) the orderly replacement of LIBOR as the reference rate in those public offerings with variable interest rates, allowing a timely transition for when LIBOR ceases to exist and/or is not representative as a reference rate.
In general terms, the SMV is very market and client oriented and as such it is very much aware of the situations that require its attention and seeks to address these by issuing regulations such as the ones we have already mentioned, which benefit the capital markets of the Republic of Panama, not only from the regulator’s perspective, which ultimately procures a healthy and vibrant market, but also from the client’s perspective, finding a stable market which remains at the forefront of the situations that may have an impact on it.
Moreover, working hand in hand with the SMV, Latinex also plays a vital role in the capital markets of the Republic of Panama, providing a completely developed, modern and regulated market for debt and equity securities.
Latinex (formerly known as the Panama Stock Exchange) is the new corporate image before the national and international markets, reflecting its strategy of crossing borders and becoming an international capital markets hub, with the traditional focus of serving as an investment facilitator; not only in Panama but the world, maintaining characteristics such as: swiftness, reliable and timely information, as well as highly qualified personnel, supported by cutting-edge technology.
Considering the foregoing, in addition to the solid operational standards of Latinex, which makes it very straightforward for local and international trades to take place through it, Latinex has indicated that its medium-term plan is to become an international capital markets hub.
Latinex, among others, has been working and implementing the following building blocks to allow it to become an international capital markets hub: (i) markets integration, mainly through remote operators, such as the one entered between Central Latinoamericana de Valores S.A. (“Latinclear”) and CEDEVAL (El Salvador) and through correspondent agreements, such as those currently existing between Latinclear and Interclear (Costa Rica), Latinclear and Cenival (Nicaragua), Latinclear and CVN (Guatemala), Latinclear and CEDEVAL (El Salvador), and most recently, with DECEVAL (Colombia), (ii) sustainable development, which entails the launch of the first Sustainability Report pursuant to the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) standards, with the intention of positioning Latinex as a carbon neutral organization by 2050, (iii) promotion of social, green and sustainable issuances (Latinex has already launched its Guide for the Reporting and Voluntary Release of Environmental, Social and Corporate Governance Factors, which is in line with values and standards recently updated at a global level), and (iv) providing assistance by developing the necessary regulatory structure, efficient processes, attracting and re-activating local and international issuers; continuing with the iLink and Euroclear links for corporate debt and equity.
In summary, in our view, the future looks bright for the continued development and sophistication of capital markets in Panama, provided that there is the political and administrative will and that the key actors of the capital markets of the Republic of Panama continue working together procuring the continuous issuance of constructive regulations, the investment in technology, in qualified human resources, and focusing on financial, social and environmental sustainability, as well as the promotion of Panama as an international capital markets hub.