FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Latin America: Investors News Letter 10 May 2013

Mexico

Mexico Industry Output Falls Three Times More Than Forecast

Mexico’s industrial production fell three times more than analysts forecast in March, reinforcing expectations that the central bank will cut interest rates for the second time since 2009 later this year.

Factbox: Key facts about Mexico’s tax system

MEXICO CITY – Mexico’s new government has promised a comprehensive review of its tax system, to be announced in the second half of 2013 along with an overhaul of energy policy.

Obama tells Mexicans a ‘new Mexico’ is emerging

US-Mexico Stereotypes Must Be Broken

America Movil sees material impact from Mexico telecom reform

Brazil

Despite winning top world trade job, even Brazil looks beyond WTO

Brazil campaigned hard to get the top job at the World Trade Organization this week but behind closed doors even it acknowledges that the WTO’s main mission – pushing forward in global trade talks – looks for the moment like a lost cause.

BM&FBovespa Quarterly Earnings Trail Estimates as Costs Increase

Petronas Malaysia bolsters Brazil’s Batista with $850 million oil-field buy

Venezuela’s Maduro gets firm Brazilian backing, trade

Brazilian M&A Picks Up as Asians Seek Cheaper Oilfields

Latin America

Argentina’s Deadbeat Special: Buy a 4% Bond or Go to Jail

Panama Canal Cuts Water Use as Drought Prompts Energy Rationing

Brazil’s Odebrecht plans $20 billion spend, targets Peru as key investment
CHICAGO TRIBUNE – Brazilian conglomerate Odebrecht plans to invest $20 billion globally over the next three years, mostly in Latin America and much of it in Peru

Saipem wins $500m offshore contracts in Latin America
- Italy-based engineering services provider Saipem has received new engineering and construction (E&C) offshore contracts, worth a total value of $500m, in Latin America.

APMT prepares for high growth markets
Although global container volumes are not predicted to grow as rapidly over the next five years as they have over the past decade, high growth emerging markets will require higher levels of productivity and rely heavily on expanded inland services

Cartagena aims to be a global megaport by 2017
The Colombian Caribbean port of Cartagena is undertaking extensive infrastructure and technology upgrades in an effort to be one of the world’s 30 best megaports by 2017.

Filed under: Argentina, Brazil, Central America, Chile, Colombia, Energy & Environment, Malaysia, Mexico, News, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , ,

Latin America: Investors News Letter 14 March 2013

Top Ranking Banks in Latin America
After a decade of unusual success, the LatAm banking sector has slowed its growth
The year 2011 closed with disturbing news. Banco Santander decided to sell its subsidiary in Colombia, which finally Chile’s Corp Group bought for US$1.225 million. At the time, the chairman of Santander, Emilio Botin, said the measure was taken to “strengthen the balance sheet” of the crestfallen Spanish giants. As he explained, “Our market share in commercial banking in Colombia is far from the 10% which we aspired to get in the markets where we operate.” …

LatAm Hedge Fund Experts Weigh In
On the Current Political and Economic Context
Though 2011 and 2012 have been strong years for LatAm hedge funds, particularly relative to other regions, the political and Workings macroeconomic context in which local managers are investing has been fraught with complicated developments.  For instance, the slowdown in China has affected commodities markets, the lifeblood of many of the region …

Investors Ditch Brazil For Mexico, Colombia

Gramercy Adds to Latin America Private Equity Investment Team

IFC Invests $100M in Energy for Caribbean, Latin America

Brazil

2013 Oil & Gas Industry Perspectives  Brazil
Brazil is heralded as the largest and most significant new oil and gas prospect of the last few decades. However, there is still a long way to go to realize the promise of a new non-OPEC stable source of supply in the top 5 world oil producers by 2020. Progress toward this ambitious target has been slow in the last year, as project development, execution and political risks have taken their toll …

Brazil Real Drops on Speculation Credit Rating May Be Lowered

First meetings on Guyana-Brazil infrastructure project begins

Paraná green lights process to start Paranaguá port infrastructure works in Brazil

ETF investors avoid Brazil

Brazil Seeks Recipe to Attract Investors at Lower Cost

Brazil May Be Next Health-Care Frontier for Global Investors

Troubled Brazil fund Laep to sell 40 mln new shares-filing

BTG Pactual shuts macro hedge fund to new money

Argentina

Argentina Is Replaying Another Inflationary Collapse

Mining investment in Argentina grows 72% despite risky business climate

Fernandez Angers Investors While Ducking Argentine Austerity

Colombia

Foreign direct investment in Colombia seen down in 2013

Chile

Top LatAm selector on working Chile’s red tape

Banchile builds with Fidessa’s sell-side trading platform and connectivity network

Costa Rica

Costa Rica Constructing $96M Oil Terminal

Peru
Peru announces major upgrade to Lima’s water infrastructure

Peru’s Private Pension Funds Want Higher External Investment Limit

Qatar “looks favorably upon” investment-friendly Peru

Peru’s Private Pension Funds Want Higher External Investment Limit

Velarde Says Peru May Allow Pension Funds to Invest More Abroa

Venezuela

Venezuela to Create New Parallel Exchange Rate, Ramirez Says

Venezuela will establish a new parallel exchange rate as it seeks to crack down on a black market in which the dollar is worth about four times more than the official rate, Oil Minister Rafael Ramirez said.

Filed under: Argentina, Banking, Brazil, Central America, Chile, Colombia, Latin America, Mexico, Peru, Venezuela, , , , , , , , , , , , , , , , , , , , ,

Latin America: Investor News Letter 18 January 2013

Mexico
Mexican Peso Slides on Carstens Hint at Interest-Rate ReductionMexico’s peso fell the most in four weeks after central bankers signaled that a further slowdown in inflation could prompt them to lower interest rates.
Nieto seeks to open Mexican energy sector
Los Tres Amigos: Positioning Your Portfolio In Mexican Peso Denominated Deb
Most U.S. funds missed Mexico gains, Brazil drop in 2012
Japanese investments in Mexico steady
Region completes work on international infrastructure project with Mexico

Brazil
Brazil’s Real Declines on Inflow Concern; Swap Rates Climb
Brazil: Daylight piracy
“SQUEEGEE merchants of the seas”: that is the nickname shipping companies have bestowed on the pilots who guide ships into Brazilian ports. Their legal monopoly and unregulated fees place them among the country’s highest earners: 150,000 reais ($73,500) a month, estimates the shipowners’ association. It costs twice the OECD average to import a container to Brazil, says the World Bank—and since that excludes bribes and fees for go-betweens, the true figure is surely greater.
Brazil Seeks Private Partners to Operate Rio de Janeiro, Belo Horizonte Airports
Brazil announces regional airport infrastructure investment plans
Brazil aviation faces turbulence after rapid ascent
Brazil ports starved of investment, buried in red tape-group
Guyana, Brazil sign on to infrastructure plan
Brazilian municipality of São Bernardo do Campo to improve sustainable urban mobility with loan from IDB

Latin America
Argentina: Tax & Estate Planning
Argentina rapidly changing oil/gas industry levies to attract foreign investment
Bolivia takes over Spanish-owned Iberdrola energy suppliers
Colombia: ANI to launch four new public infrastructure concessions valued at US$1.95bn
Colombian Peso Advances on Foreign Investment Outlook
Chile: First Solar Stakes Claim in Latin America
Peru’s investment opportunities attracts Qatar’s firms Peru: Infrastructure gap put at $88bn
Peru-based AFPs invest over US$3.5bln in infrastructure
Cement Industry Figures In Peru: Btg Pactual Begins Coverage Of Cpac With A Buy Recommendation
Peru to invest over US$701mln in access infrastructure projects
Peru: Ezentis shifts focus to Latin America, helped by $64M Telefónica Peru contract
Peruvian entrepreneurs expect investment to continue growing in 2013
Venezuela: What Hugo Chavez’s Illness Means for Venezuelan Mining

Latin America and Caribbean PhotoVoltaic Demand Growing 45% Annually Out To 2017 
Latin American ports record strong performance in 2012
South America: A Powerhouse, Not a Circus
10 Latin American startups to look out for in 2013

Filed under: Argentina, Brazil, Chile, Colombia, Energy & Environment, Japan, Latin America, Mexico, News, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , , , , ,

Latin America: Investor News Letter 19.October 2012

Mexico

Elektra to offer No-Fee Banking and Long Term loans to US low income population
Billionaire Ricardo Salinas said he wants to offer no-fee banking deposits and longer-term loans to low-income U.S. consumers, aiming to export his Mexico business model, successful in 8 Latin American countries to the world’s biggest economy.

Mexico’s market shines as reforms, confidence take hold
NYSE Technologies, Bolsa Mexicana and ATG build Mexican trading infrastructure
Slim-backed Mexican firm plans IPO, new cement company
Alsea to invest $110 million in Mexico, Argentina Starbucks cafes
Mexico passes law to combat cartel money laundering

Brazil

Itau Sinks as Rousseff Plan Hurts Bank Profits: Corporate Brazil

Brazil’s push to drive down consumer borrowing costs is eroding the value of its biggest banks.

Brazil wants to restrict strikes in public sector
Monsanto suspends collection of royalties in Brazil following state court ruling
Brazil M&A hits five-year low on turmoil, state intervention
Brazil and South Africa Form Partnership On Future Investment Promotion Initiatives
Brazil’s Water Sector Benefits From Investment Ahead of World Cup, Olympics

Latin America

Cencosud of Chile to Acquire Carrefour Colombia Division

Cencosud SA agreed to buy Carrefour SA’s Colombian unit for 2 billion euros ($2.6 billion) as it taps rising consumer spending in Latin America and the world’s second-largest retailer retreats from markets it can’t dominate.

Venezuela/Paraguay rift spoils Brazil’s plans for a ‘normal’ Mercosur summit
Singapore, the fastest growing market for Latin America
CAF Encourages Singapore to Invest in Latin America
Cuba Praises China-Latin America Ties
Latin America can produce double-digit investment returns over next decade
Arab and Latin American leaders agree to investment bank
LatAm’s Largest Solar Power Plant  in Peru receiving 40 MW of Solar PV Modules from China
Arab and LatAm leaders agree to investment bank
Peru central bank could allow more pension funds invested abroad
Latin American Ratings Strong Enough to Weather a Commodity-Cycle Downturn
Latin American gold rush brings riches, conflict
Latin lithium output mired in controversy

Source: Various 19.10.2012

Filed under: Argentina, Banking, Brazil, Chile, China, Colombia, Energy & Environment, Mexico, Peru, Singapore, Venezuela, , , , , , , , , , , , , , , , , , , , , , ,

Latin America: Investors Newsletter 31 August 2012

Mexico

Analysis: Spanish cloud may mean discount for Santander Mexico listing
Mexico Pension funds hungry for Santander unit offering
Colombia Considering Move From Brazil’s to Mexico’s IMF Group
Delta Repair Center With Aeromexico to Boost Aerospace Hub in Queretaro
Brazil

Fitch says Brazil’s infrastructure plan as execution risk
SEC Charges Brokers for Defrauding Brazilian Public Pension Funds
Will increased stimulus for Brazilian transport infrastructure be sufficient?
Brazil’s BES Investment Bank Focuses on Infrastructure
Canadian pension funds cautious on Brazilian infrastructure plan

Latin America

Colombia Brags of Overtaking Argentina as Echeverry Eyes IMF Job
Colombia-led Group to Build $396 Million Peru Highway
Ferrovial sells BAA stake to fund Latin America push
Is Venezuela about to open up to foreign oil investment?
Investment insights from a Peruvian beach
YPF chief promises to protect foreign oil companies’ profits if they invest in Argentina

See also LIQ Latin America Infrastructure ALI Alternative Latin Investor  or MercoPress more information about Latin America

Filed under: Argentina, Brazil, Chile, Colombia, Latin America, Mexico, News, Peru, Venezuela, , , , , , , , , , , , , , ,

Latin America: Investors Newsletter 15 June 2012

Petrobras Is Worst Big Oil Investment on Deepwater Disappointments: Energy   Petroleo Brasileiro SA is the worst investment among the world’s biggest oil companies this year as Brazil’s state-controlled producer suffers delays and cost overruns developing the largest oil finds in more than a decade.

Iusacell, Telefonica to challenge Mexico’s Slim America Movil  – Iusacell and Spain’s Telefonica said on Wednesday they have reached a deal to share their infrastructure in Mexico as they seek to mount a

FX swings may stir debt investors in Mexico, Peru  Mexico, Peru debt mkts most vulnerable to outflows in Latam. * Peru acting to curb FX, Mexico avoiding intervention.

Mexico’s Slim family (Grupo Carso) takes stake in Argentina YPF nationalized enegy company Mexican tycoon Carlos Slim and his family have taken a stake in Argentina’s recently renationalized energy company YPF in lieu of a loan guarantee, ..

Filed under: Argentina, Brazil, Energy & Environment, Latin America, Mexico, News, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , , , , ,

Latin America: Investors Newsletter 13 April 2012- Alternative Latin Investor

Alternative bioenergy M&A picks up steam in LatAm
-
Ethanol deals wait for better days

Alternative bioenergy crops could drive the next big wave of M&A in Latin America, much like sugarcane drove activity during the ethanol boom in the early 2000s, according to industry sources.

European Bank Crisis
-How will it affect Latin America?

European banks provide 45% of all the external credit lines to LatAm. Could a pullback from their international lending activities affect the operations of LatAm companies?

Other News from Latin America

LatAm tops for emerging Private Equity 

UBS Promotes LatAm Dealmaker 

Latin America’s Start Ups Expand: From Silicon Valley to Tequila Valley 

GM urges Latin America to honor trade pacts 

Private Equity Poised For Gains In Brazil On Growth Ahead 

Brazil Stocks Erase Gains, Slump On Foreign Investor Exit

Mexican firm eyeing Cuba offshore oil projects

Mexico steps out of Brazil’s shadow

Chile LAN-Brazil TAM Tie-Up Co Seen Having 2014 Revenue Of $17.5 Billion

YPF Jumps on Report Argentina Seeks Control: Buenos Aires Move

Investors Should Say Goodbye Argentina

Peru Central Bank Buys $668 Million to Stem Sol Gain: Lima Mover

Uruguay’s Credit Rating Returned to Investment Grade by S&P

Fitch revises outlook on 5 Venezuelan banks to negative

Ecuador Chosen as Best Overseas Residential Investment Market

 

Source: Alternative  Latin Investor, 13.04.2012

Filed under: Argentina, Brazil, Chile, Colombia, Latin America, Mexico, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , , ,

Kroll LATAM Risk Report August 2010: Money Laundring, Mobile Banking, Mexican Security, Brazilian Litigations

MONEY LAUNDERING  Banks on High Alert

Throughout much of Latin America and the Caribbean, banks and other financial institutions are getting tougher on money laundering. For the bad guys, the game of cat-and-mouse continues, as they jump from one country to another, looking for the weakest link in the chain. GO TO FULL STORY

BANKING & TELECOM  Mexico The Regulator as Hero

Mexico’s unheralded decision to design rules for mobile banking is a major milestone on the road to including millions of unbanked and underserved Latin Americans in the financial system and the formal economy. GO TO FULL STORY

Mexico Corporate Security

An annual survey conducted by Kroll and the American Chamber reveals a higher sense of insecurity among business executives at multinational and Mexican corporations. The safety of employees and executives remains the top concern for corporate heads of security. GO TO FULL STORY

CORPORATE LAW Challenging Sham Litigation  in Brazil

A Brazilian regulatory agency takes on Germany’s Siemens for alleged anti-competitive practices in a case that is likely to set an important precedent for regulators and the courts in protecting free market competition.  GO TO FULL STORY

Source: KROLL, 06.08.2010

Filed under: Brazil, Central America, Chile, Colombia, Latin America, Mexico, News, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , ,

Alternative Assets in Latin America: Expert Panel Discusses June 15, 2010

Please join Alternative Latin Investor and Focus Point Press June 15th for a round table webinar of industry experts discussing alternative assets in Latin America.  http://www.alternativelatininvestor.com/Webinar/AlternativesAssetsInLatAm.pdf
Our Panel:

Brigitte Posch
PIMCO Executive Vice President and Portfolio Manager in its emerging markets group. Prior to joining PIMCO in 2008, she was a managing director and head of Latin American securitization and trading at Deutsche Bank.

Will Landers
CFA, Managing Director, Senior Portfolio Manager, is the portfolio manager for the BlackRock Latin America Fund, the BGF Latin America Fund, the BSF Latin American Opportunities Fund and the BlackRock Latin American Investment Trust PLC.

Andrew Cummings
Founder and Chief Investment Officer of Explorador Capital Management, LLC.

Eric Saucedo
Partner at Tricap Partners & Co., an investment banking firm focused on early-stage and middle market growth companies.

Topics:

-How alternative investment vehicles are faring in this recovery phase of the crisis
-What strategies performed the better than others
-What regions, sectors and vehicles are looking good for the coming year
-New players to the region who we should keep an eye on
-Growth of regulation in the alternative space
-Where new capital to Latin America is coming from
-Participation of both, foreign and domestic institutional investors
-How LatAm stacks up against other emerging markets
-The effect of Chavez on investor confidence in LatAm investments
-How sustainable is Brazil
-Countries to watch

Date: Tuesday, June 15
Time: 1pm EST
Price: 89.00USD
Register at http://www.regonline.com/Checkin.asp?EventId=866305

For more information please see,
http://www.alternativelatininvestor.com/Webinar/AlternativesAssetsInLatAm.pdf

Filed under: Argentina, Banking, Brazil, Central America, Chile, Colombia, FiNETIK Events, Latin America, Mexico, News, Peru, Services, Venezuela, Wealth Management, , , , , , , , , , , , , , , , , ,

Jim Rogers’ Crystal Ball on Latin America and China

The legendary investment guru and long-time commodities booster shares his views on the global economy, the commodity bull market and how Mexico, Brazil, Colombia and other Latin American economies will hold up in 2010 and beyond.

Ian McCluskey, Miami, Kroll – Tendencias January 2010

Alabama-raised Jim Rogers is perhaps best known as co-founder, with George Soros, of the Quantum Fund, which made him a wealthy man by his mid-30’s. But that was 30 years ago. Since then, he has circumnavigated the globe on a motorcycle and in a souped-up yellow Mercedes, written several best-selling books, and made countless millions more investing and dishing out advice in his customary blunt, yet southern gentlemanly manner.

A regular face on financial news networks and at investment summits the world over, Rogers – his timing impeccable — pulled up stakes in Manhattan in late 2007, selling his Riverside Drive mansion for a record $15 million just as the real estate market began to sour. He now makes his home in Singapore, while running his business out of a law office in downtown Miami. Rogers spoke with Kroll Tendencias in late December during a brief stopover.

Like other soothsayers, Rogers is bullish on much of South America. He foresees a great future for Colombia, but is not smitten by Brazil’s long-term prospects. Rogers, whose Rogers’ International Commodities Index (RICI) provides a compass for investment funds worldwide, predicts that the commodity bull market has another 10 years or so to run its course. He expects gold to hit $2,000 an ounce and oil to reach $200 a barrel sometime this decade.

Here are some excerpts from our conversation.

The Global Economy At least in the first half of 2010, he global economy will be better than in 2008 or 2009, but I would worry about 2011 and 2012, because governments are printing and spending so much money. We’re still in an ongoing economic problem that started in 2000 or 2001. We’ll see it get better for a little while, but over the next couple of years, things will not be better than they were in 2007, and perhaps never will be, in some countries.

Commodity Prices If the world economy gets better, commodity prices will go up because of shortages and, if the economy does not get better, commodities will still go up because governments are printing so much money. Will commodities go up in 2010?  I have no idea. If there is some big surprise – if the U.K. goes bankrupt, if America invades Iran — everything will go down for a while. But whatever happens, I expect commodities to be among the best places to be in 2010.

Crises on the Horizon I don’t foresee any critical events that will impact commodities in 2010. I would expect there to be a currency crisis or semi-crisis in the next year or two. I don’t think many people expect it, except me.

Bubbles in the Making Some emerging markets may be over-priced, but that does not mean a bubble. That’s just being expensive. Every market gets over-priced one time or another in any given year. The only bubble I see developing anywhere in the world is in the U.S. bond market, the long-term government bond market. I cannot conceive of lending to the U.S. government for 30 years in U.S. dollars at 3, 4, 5 or even 6% interest. It’s just mind-boggling to me.

Outlook for Latin America I am much more optimistic about most of Latin America, especially South America, than I am about North America, with the exception of Canada. I am more optimistic about parts of Latin America than I am about much of Europe. And that’s partly because of all the natural resources. South America is a commodity story.

Gushing over Colombia It looks like there will be real peace in Colombia and, if so, that would be one of the phenomenal opportunities of our time, because they have it all. Colombia’s been at war for, what, 30 years, 40 years? Any time you can get to a country shortly after a war ends, there are usually enormous opportunities because everything is so cheap. There’s not much energy, not much capital, not much optimism, still a lot of malaise. I’ve seen it happen over and over again. And Colombia has natural resources – coal, oil, agriculture – and, of course, it could become a tourist destination again. Terrific country. (Note: Last summer, after Sri Lanka declared an end to its long-running civil war, Rogers paid a visit to look around. “I didn’t buy anything yet,” he says.)

Not Sold on Brazil Whenever commodities have done well, Brazil has done extremely well. People get excited about Brazil, they start talking about the new Brazil, but then the bear market comes back to commodities, and the same old thing happens – [Brazil] prints money, inflation, military problems, military coups – and I suspect that will happen again, perhaps in 20 years or so. Right now, of course, things are great. Brazil’s economy is commodity-based and commodities are going through the roof. Do not get me wrong; I’m just suggesting that I have heard this story before about the great new Brazil.

Brazil’s President Lula The country is run by a socialist, but nobody really wants to be a socialist any more, and the ones that do want to be rich socialists. [Lula] came in in 2002 just as the bull market was gathering steam, so he looks like a genius.

More Attractive South America
Chile is doing well, even Uruguay. I’m still optimistic about Peru, too. It’s got a lot of natural resources and a reasonably good government. It, too, had a long war. Look around South America and, other than Venezuela and perhaps Ecuador, there are better things happening than before. But, again, whenever there’s a boom in commodities, if you’re a commodity country, you look better, you feel better. There’s nothing like having lots of money in the bank, lots of income, to make countries feel better and more attractive.

Waiting for the Other Shoe to Drop in Argentina (Note: In a November 2000 article in AmericaEconomia magazine, Rogers famously announced that, after driving around Argentina for several weeks, he was liquidating his remaining investments in the country and encouraged everyone else to do the same.)  The good on the horizon in Argentina is that things have gotten so much worse over the last seven years or so, that we are getting closer to a bottom. I’m not putting a single peso back into Argentina and have not done so since the [the 2001 debt default] because their governments – I don’t know how they do it – it’s astonishing how bad they can be. I’m still waiting for the other shoe to drop — another default, another debt crisis or whatever it might be. Argentina is a great agricultural nation, but they tell their farmers “You can’t export your stuff.” What they desperately need is foreign exchange and yet they say “We’re not going to earn any foreign exchange.” It’s stupefying how hopeless they can be at times.

Wary about Mexico Mexico has some huge problems. Forty percent of its income comes from oil but the oil is depleting at a very rapid rate. And of the country’s 100 million people, they are mainly young people.  I suspect you’ll see serious problems in Mexico over the next decade because young people get agitated pretty easily. If the government faces serious economic problems because they don’t have any money any more, Mexico could boil over.

China’s LatAm Connection China sees huge shortages of raw materials developing. The Chinese are not just going to Latin America. They are all over Central Asia, Africa. They are buying up everything in sight, because they know what’s coming. They are going where the commodities are and are willing to pay proper prices. And, in most countries the Chinese don’t tell the locals what to do. They say “Here’s your money, now let’s develop those mines, or grow those cops.” Most countries seem to be welcoming the Chinese with open arms.

Commodities Trading in China (Note: China’s Dalian Commodities Exchange recently invited Rogers to become its first foreign advisor.)  The main problem with doing anything with the Chinese as far as exchanges are concerned, is that their currency is blocked. You cannot trade the currency. It’s illegal for me to buy and sell commodities in China because I am not Chinese. Even if a foreigner could invest on the commodities exchange in China, the currency is still blocked. Not many people are going to take their money to China if they can’t get it out. Some companies, like Cargill, have licenses to trade but there aren’t many. If and when China does open up to foreign investors, I suspect China would become the largest commodities trading exchange in Asia, perhaps even in the world.

Hugo Chavez’ Perennial Threat to Stop Selling Oil to the U.S. and Sell Instead to China Chavez could conceivably do it, but oil is oil. It’s not like we’re talking about Picassos. Even if Chavez told the U.S. “We’re not going to sell you oil any more,” who cares? We’ll buy it somewhere else. There would be a temporary dislocation in the market. Some refineries would suffer, some ships would suffer, but it would all be re-jiggered. Chavez has to sell his oil somewhere; he can’t simply stop selling. So that oil is still in the market. If he sells it to China instead of America, those who were selling to China would now sell to the America. Oil’s a fungible product.

The author: Ian McCluskey ( imccluskey@kroll.com ) is Editor of Kroll Tendencias, a monthly online thought leadership platform that focuses on business trends and business challenges in Latin America and the Caribbean. Articles are produced by Kroll consultants and other thought leaders in the region.

Source: Kroll – Tendencias January 2010

Filed under: Argentina, Asia, Brazil, Central America, Chile, China, Colombia, Latin America, Mexico, Peru, Venezuela, , , , , , , , , , , , , , , , , , ,

China Latin America: The decade of the Panda?

Before China can deliver on its promise of massive investments in Latin America, Chinese companies need to overcome their fear of Latin American volatility and political risk.  And Latin America needs to prepare more cross-border suitors to bridge the cultural divide.

John Price, Shanghai -  Kroll Tendencias, January 2010

When President Hu Jintao toured Latin American capitals in November 2004, he predicted that trade and investment flows between China and Latin America would both surpass $100 billion within a decade.  His forecasts turned out to be too conservative on trade but naively ambitious regarding the flow of Chinese investment to Latin America.  Two-way trade topped $140 billion in 2008 but, according to Shanghai’s SinoLatin Capital Analysis, accumulated Chinese investment in the region at the end of 2008 stood at a meager $12 billion, considerably less than the foreign direct investment into Latin America from the U.S. state of Michigan.

What the booming trade figures underscore is the growing dependency between China and resource-rich Latin America and the compelling logic of partnership.  The disappointing investment flow levels, on the other hand, reflect the many challenges in bringing together two utterly different cultural, political, business and legal systems, in spite of the economic imperative to do so.   The missing actor, whose absence has prevented the marriage of the Latin American suitor and the Chinese bride, is the proverbial marriage broker — the bi-cultural professional class of bankers, lawyers, and consultants that can construct and maintain cross-border investments.

It takes time to develop effective marriage brokers in global business, but progress is being made.  As his company’s name would suggest, Erik Bethel, principal of private equity firm Sino-Latin Capital in Shanghai, is one such cross-border broker.  Bethel recognizes the potential of Latin America to Chinese investors and is gambling his professional career on that promise.  Born in Miami to Cuban parents, educated in the Ivy League of U.S. colleges, Bethel honed his investment banking skills in Latin America, then decided to pursue the China dream and moved to Shanghai seven years ago.  At that time, Shanghai was still a would-be financial center, littered with cranes and covered in construction dust.

Since then Shanghai as boomed as a financial hub and Bethel has learned Mandarin.  More importantly, after searching high and low, Bethel has identified some of the elusive cast of dealmakers among China’s state-owned enterprises (SOEs), whom he must woo into investing in Latin America. “Unlike the traditional global financial centers of Wall Street or the City of London where big investors walk with the swagger of pseudo-celebrities,” Bethel explains, “the guy writing the check in China is likely to be a humble bureaucrat working diligently behind a non-descript desk.  He doesn’t frequent fancy clubs or high profile conferences.  Finding him is half the battle.”

Bethel and other pioneers like him may be the key to China making good on Hu Jintao’s investment forecast.  “My job,” says Bethel, “is to find that SOE investor, who by and large has a rudimentary, if not distorted, perception of Latin America, educate him on the opportunities and realities of doing business in the region, and hopefully convince him to get on a plane and go kick the tires on the great potential that exists for Chinese companies.  I realize that this is both a frightening and exciting prospect for someone, who may never have left China other than to go to Hong Kong, and who speaks only a smattering of English and no Spanish or Portuguese, but the opportunities are just too great to ignore.  Not to put too fine a point on it, but without someone like us undertaking this great effort, how on earth is Chinese money ever going to find its way to Latin America?”

Indeed, the challenge of bringing together Chinese capital and Latin American resources requires many more foot soldiers like Bethel in China.  From the Chinese investor’s perspective, Latin America still seems more distant and exotic than the many investment opportunities at home or within China’s continental sphere.  Nothing less than a full-press educational and public relations effort is needed inside China by all those with an interest in attracting Chinese capital to Latin America, be they diplomats, multi-latinas or the professional service firms bent on catching the wave of investment.

China, the new source of global investment capital

While many Chinese investors have yet to discover Latin America, no one now doubts the tectonic shift of capital flow coming out of China.  For the last 15 years, China has absorbed more direct investment than it exported as the global Fortune 1000 bet their futures on the Middle Kingdom.  When the year-end numbers are in, however, 2009 is expected to mark the first year of positive net outflow of investment capital for China, with over $100 billion in the form of direct foreign investment overseas.

China’s sudden emergence as the new FDI source on the world stage is explained in large part by its export-driven economic growth model. In order to maintain an undervalued currency and, with it, full employment — a political imperative — China must export $250 billion of capital each year to balance its excess trade and tourism surpluses.  For several years now, the easy solution was for the Central Bank of China to buy U.S. Treasury bills, thus helping to stoke the engine of U.S. consumerism (and Chinese exports) with record low U.S. interest rates.  That formula looks less attractive thanks to undisciplined U.S. monetary and fiscal management which represses U.S. interest rates and weakens the dollar, as the prospect of much higher U.S. inflation looms ahead.

The one-trick pony model of exporting to the over-indebted U.S. middle class is now passé.  China must look to other markets for its exports and simultaneously speed the rise of its internal consumer base. Middle income emerging markets like most of Latin America, South and North Africa, SouthEast Asia and Central Asia are in many ways more natural markets than the U.S. for China’s portfolio of mass-produced consumer goods.  Building bridges both politically and commercially in those markets requires outbound Chinese direct foreign investment. 

Garrigues, Spain’s largest commercial law firm, whose transactional practice follows closely the global flows of capital, set up an office in China in 2005, when Spanish firms had caught the China bug and were pouring in capital.  Francisco Soler Caballero, head of the Shanghai office, explains, however, that the firm’s business, like the international capital flows, has reversed course.  “We came to China to help Spanish companies enter the Chinese market,” says Soler. “We continue to help Spanish companies expand in China but the economic crisis in Spain has curbed the appetite of Spanish companies for costly Chinese acquisitions. Today, we find more cross-border opportunities with Chinese companies who want to expand abroad.  Having helped countless Spanish companies enter Latin America, we are now doing the same for Chinese SOEs.  It is a welcome but unpredicted turn of events for our China practice.”

Internally, China has all it needs to develop its economy save one important element, natural resources.  There is a growing sense of concern among Chinese economic planners that medium-term growth is threatened by an uncertain supply of raw materials, which presently China must import from foreign controlled firms.  When Japan and South Korea reached a similar impasse during their rise to developed-nation status, they chose to negotiate long-term supply contracts with oil, gas and mineral producers, carefully selecting downturn years to lock in attractive pricing over 10-30 years.  With their strengthening currencies and relatively low commodity prices, such a strategy made sense for Japan and Korea in the late 80s and 90s. Given China’s obsession with maintaining its cheap currency, its resulting excess liquidity and the likelihood of continued elevated pricing with commodities, it makes far more sense for China to venture out and buy operational control of its raw material supply.  

In 2008, China had 19.6 billion barrels of proven oil reserves and 2.3 trillion cubic meters of proven natural gas reserves (14th and 16th largest reserves in the world, respectively).  But given China’s vast energy demands, China still had to import 55% of its crude oil consumption in 2008, according to the China National Information Center.

By 2020, Chinese natural gas production is expected to fall short of consumption by 50-100 billion cubic meters, which explains why PetroChina went on a recent shopping trip to Australia in search of gas production assets.

Even more dramatic are China’s shortages of metals and minerals. According to the U.S. Geological Survey, Chinese reserves of copper, manganese, and nickel are 5.4%, 8%, and 2.5% of the world’s total, while China accounts for 27%, 48% and 22% of the world’s total consumption of these metals.

Even in the politically sensitive terrain of food supply where China spends billions subsidizing its agricultural base, the country cannot avoid a reliance on imports.  Soybean is a good example.  China currently imports over 60% of its annual 50 million tons of consumption.  In terms of forestry, China is one of the largest importers of wood pulp and industrial round wood (7.4 million tons and 38.6 million tons in 2007, respectively) not only to satisfy the domestic market but also the export-driven demand of its paper and furniture industries.

Chinas Risk Adversity

Latin America has the good fortune of having many of the top producers of the resources that China so badly needs.  And there is clearly no shortage of capital in China.

New suburban homes in the Pudong district of Shanghai are sold before they are built, at a cost of $3-$5 million for a 3,000 square foot, two-floor home in a gated community.  China’s own economic stimulus package includes vast, and some say, opulent infrastructure projects.  The 30 kilometers of high speed rail track from central Pudong to Shanghai’s airport carries its passengers up to 430 km/hr for a total of 8 minutes at a construction cost of almost $2 billion.  If Chinese money can find its way into such questionable investments, why can’t Latin America attract more Yuan to its compelling array of resource companies and infrastructure opportunities?

The small and nascent talent pool of service professionals that can bridge the regions may be the most important reason for the disconnect thus far, but equally important are Latin America’s lingering perception problems.

Predictability, which the Chinese value above all else, is not a traditional Latin American virtue.  Chinese investors are disheartened by Latin America’s history of volatility.  Rather than seeing currency fluctuation as an opportunity like many savvy Latin American investors do, the Chinese loath the uncertainty that it adds to their forecasts.  Many Latin American economies have made tremendous strides to curb currency volatility and build international reserves through floating currency regimes and fiscal discipline.  Chinese investors need to be enlightened about this change and to become better versed in the science of currency hedging.  They also need to learn how to navigate and mitigate the legal and political risks of doing business in Latin America.

At home, large Chinese SOEs can rely on the rule of law or their own political power to manipulate the rule of law to ensure legal and regulatory certainty.  When the same companies look abroad, they tend to prefer one of three models; a sound legal environment, like Australia, Canada, the U.S. or Europe, where their investments are defendable through the courts; or small, undemocratic economies like the Sudan and Burma, where they can exercise political influence to their liking; or satellite economies like Hong Kong, Macao, and Taiwan where they enjoy political sway and legal protections.

The perception in China of Latin America is that the region offers neither the protections of a transparent legal system nor the ability to exercise unperturbed political influence.  Some of the largest mergers and acquisitions to date in the region have been via the purchase of foreign-listed companies, such as Corriente Resources (copper mining) and EnCana (oil and gas), both Canadian companies with significant investments in Latin America.  In this respect, it is the legal community that must lead the effort to illustrate the defendable legal rights of foreign investors in Latin America’s more advanced economies and differentiate those from the list of countries in the region where legal risk remains a serious obstacle.

Related to legal risk is the acute Chinese sensibility to political risk.  Latin America’s political dynamic is frankly too fluid and complex for most Chinese investors to grasp.  The need to campaign from the left and govern from the right, which is Latin America’s political hallmark, can prove both alarming and confounding to Chinese investors.  The relatively decentralized governance of most Latin American countries adds another source of anxiety to Chinese investors, who must get used to idea that in Latin America they are as vulnerable to the vagaries of local politics and local political players like labor unions, NGOs, and indigenous advocates, as they are to the whims of the executive branches or national legislatures.  China learned this lesson when Chinese copper giant Zijin faced violent labor conflict with its Rio Blanco mine investment in Peru.

When it comes to political risk, the Chinese need to alter their thinking, not just to deal with Latin America, but with most countries in which they wish to invest.  China’s lack of understanding of political risk cost them dearly in the U.S. when in 2005 the China National Offshore Oil Company (CNOOC) was denied by the U.S. government in its bid to purchase Unocal, subsequently gobbled up by Chevron.  China miscalculated again when telecom equipment maker Huawei was turned down in its quest of 3Com.

Perhaps Latin America’s most difficult image problem is that of physical insecurity. In a country like China where physical violence toward the business class is unheard of, where guns cannot be owned by its citizens, Latin America is the wild west by comparison.

It is one thing for a company to visit Latin America to sell goods or buy raw materials.  In either case, the risk of physical violence intruding on the negotiations is minimal.  But in the case of Chinese foreign investment, which typically relies on securing Chinese managerial control through the transfer of dozens, if not hundreds of employees from China to the foreign operation, the risk is considerably greater.  The internationally readied managerial labor pool in China is very thin, such that sending people to an “unsafe” environment is not an easy internal sell for many Chinese firms.  Overcoming the security hurdle requires a dual effort.  Latin Americans need to more openly address their security shortcomings when presenting their countries, regions and companies as investment destinations.  Meanwhile, Chinese investors need to embrace security risk by better understanding it and learning how to mitigate such risks through preventive measures and insurance products.

In November 2008, the economic imperative of Chinese natural resource investment in Latin America received a boost from China’s Ministry of Foreign Affairs when it published in its Latin American regional policy paper a centerpiece mandate titled “Go Outward” (走出去).  In China, government directives still matter because it is the government controlled SOEs (typically 70% government, 30% private ownership) that naturally lead the charge of outbound foreign direct investment.  These vast oligarchy-like enterprises have the capital (or privileged access to it) and the need to invest in their supply base.

High-level policy embracement of a “Buy Latin America” strategy was slow in developing in part because China always considered it an untouchable zone of influence of the U.S.  That fear has evidently subsided or been usurped by the sheer economic imperative of securing natural resource supplies.  The recent push by the government has prompted a new sense of urgency to invest in Latin American resource companies and resource related infrastructure projects.

The onus now lies upon vested interests to build the bridges that will bind this vital, though still awkward, partnership.  Latin Americans, with the help of service professionals, especially investment bankers, private equity funds, law firms, risk consultants and insurance firms, must step up their efforts to educate their future Chinese partners on how to evaluate, navigate the opportunities and mitigate the risks of investing in  Latin America.

Source: Kroll- Tendencias January 2010

Filed under: Argentina, Brazil, Central America, Chile, China, Colombia, Energy & Environment, Latin America, Library, Mexico, News, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , ,

Latin America Exchanges: Colombia Stocks Lead

Colombia leads Latin American stocks in growth the past decade and last year, but Brazil remains the volume champion.

Colombia’s benchmark IGBC stock index grew by 927.9 percent the past decade. That was more than any other Latin American stock index and compares with a 9.3 percent decline in the Dow Jones Index in the same period, according to Economatica.

Colombia’s stock transactions also were the best performer in Latin America last year, according to a separate analysis from Economatica. The average value of transactions in Colombia fell by 2.3 percent in 2008, which was lower than all other countries in the region and compares with the total Latin America decline of a 13.5 percent.

Brazil’s Ibovespa index, which has been among the global leaders in recent years, grew by 301.3 percent in the ten year period.

Last year, Brazil’s exchanges posted an average of $2.4 billion in stock transactions, a decline of 13.6 percent compared with 2008, according to Economatica.

Brazilian companies — led by oil giant Petrobras, mining giant Vale and banking giant ItauUnibanco – dominated stock transactions in Latin America last year. Nine of the ten most traded stocks were from Brazilian companies. The other one was from Mexico-based America Movil, Latin America’s largest wireless operator.

Mexico’s IPC index grew by 350.5 percent in the ten year period. Last year, Mexico’s stock transactions averaged $440.1 million, a 13.9 percent decline.

The Caracas Stock Index (IBC) grew by 916.5 percent in the ten year period, but last year stocks traded in Venezuela saw their average daily value drop by 29.5 percent. That was the second-worst result in Latin America.

The worst performer last year was Argentina, where the value of average daily transactions fell by 54.5 percent. During the previous decade, the country’s Merval index increased 321.3 percent.
The Lima Stock Index (IGBVL) was among the leading growth winners in the past decade, with an increase of 671.8 percent. Last year, the average value of Peruvian stocks fell by 21 percent.
Chile’s IPSA index grew by 218.8 percent in the past decade. Last year, Chile’s daily average stock transactions fell by 3.6 percent, which was the second-best performance in Latin America, according to Economatica data.

Source: Latin Business Cronicle, 07.01.2010

The study took into account currency fluctuations in the main Latin American markets between December 31, 1999 and December 31, 2009, Efe reported.

The stock exchange with the greater profitability in the decade was Colombia’s, with a 927.9 percent increase, followed by Venezuela (916.5 percent), Peru (671.8 percent), Mexico (350.5 percent), Argentina (321.6 percent), Brazil (301.3 percent) and Chile (218.8 percent).

Source: El Universal, 07.01.2010

Filed under: Argentina, BM&FBOVESPA, BMV - Mexico, Brazil, Chile, Colombia, Exchanges, Latin America, Mexico, News, Peru, Venezuela, , , , , , , , , , , , , ,

Energy: Don’t Believe Long-Term Oil Forecasts

On 4 October 2009, The Wall Street Journal ran an article World Need for Oil Expected to Ease (subscription might be required), where the author, Spencer Swartz, wrote:

The International Energy Agency next week will make a “substantial” downward revision to its long-term forecast for global oil demand, a person familiar with the matter said, marking the second year running the group has slashed its view of the world’s thirst for oil.

If demand pessimists are correct, future increases in the price of crude could be damped as weaker consumption stretches world oil supply by billions of barrels. Various analyst estimates maintain that the roughly 2% a year average growth rate in world oil consumption seen earlier this decade — the biggest reason for crude prices hitting a record $147 a barrel last year — may turn out to be an anomaly and that annual growth in the neighborhood of 0.5% to 1% is more the norm.

The reality is that no one knows what the long term future holds. The IEA itself struggles with the Bull versus Bear oil outlook. Ask yourself, how many pundits foresaw the mess we are in now and anticipated the dramatic easing of oil demand?

Sure, one can gather relevant information and make a reasonable guess as to oil demand next year and the year after that. But after five years, the potential paths of demand growth become unwieldy. How will economic growth be sustained over the next five years? Will the OECD countries lag emerging countries? Will China and the rest of Asia power ahead and create substantial demand? If Asian countries do power ahead and create many millions of middle class citizens, will they demand their own vehicles and tickets on jet planes to see the world? Will Brazil and other South American countries enjoy strong economic growth? Will the Middle East be stable over this period? Will Iraq resume its full production capabilities? As you see, one can begin asking any number of questions that are impossible to answer with an accuracy or certainty and that might have a major bearing on demand or supply or both.

What do we know? We know that for a long time, oil prices were usually within $20-$30 real per barrel. Now those prices are laughable. No reasonable person expects the world to return to those prices any time soon. Many major oil fields around the world are in decline. Oil companies are searching in more remote and sometimes more unfriendly regions of the world to develop further existing fields and to discover new fields. And, the rise of oil prices has given new prominence to some national oil companies. A sample list, though incomplete, of companies include: Gazprom OAO (OGZPY.PK), Petróleos de Venezuela, S.A., and Petróleo Brasileiro S.A. – Petrobras (PBR).

If we were to accept the 1% annual growth of oil demand mentioned in the WSJ quote for a long duration, what would that mean or imply? A child born tomorrow will see by her seventieth birthday a doubling of daily world oil production from about 85 million barrels per day to 170 million barrels per day. Moreover, during her seventy years, the world will have produced more during that time than the total cumulative amount prior to her birth. Call me a skeptic, but I am unable to see where we would find that much additional oil to produce at such high rates for such a sustained period.

To be clear, neither the article nor the IEA is suggesting that we endure a 1% growth forever. Rather, I wanted to use this seemingly small innocuous number of only 1% growth to draw attention to its implication. If the long term growth were 2%, then in 35 years the daily world oil production would double to 170 million barrels per day and the oil produced during those 35 years would exceed the prior total cumulative amount of oil produced.

I recommend two excellent sources of information to learn more about oil, oil demand, oil prices and various policy initiatives:

  • Statistical Review of World Energy from BP p.l.c. (BP). I found the link to the Adobe pdf document toward to the bottom on its homepage.
  • Monthly Oil Market Report from the International Energy Agency. The link is to the webpage that hosts the document that is released two weeks after the initial release date. Subscribers receive immediate access through a different link.

Both documents are extremely helpful. I find the BP document provides concise information and historical context. The IEA document provides the agency’s latest thinking and forecasts.

As the world struggles to find new sources of oil, there will be dramatic changes. I have already discussed some questions we should ask ourselves as we contemplate future oil demand growth. Of course, many more questions need to be considered. And I have indicated that some national oil companies have gained strength and prominence with higher oil demand and prices. As investors, we should also think about what long term oil demand growth means for oil sands companies such as Suncor Energy, Inc. (SU) and Canadian Oil Sands Trust (COSWF.PK), and for large multinationals such as ConocoPhillips Company (COP), Chevron Corporation (CVX), and Exxon Mobil Corporation (XOM).

As demand continues to rise, I am curious what will happen. Will scientific breakthroughs help? How will the world cope with the environmental consequences? How will people adapt to possibly much higher prices? How will countries and regions change because of either having or lacking domestic oil supplies? If the world does experience higher prices, what are the implications for global world trade? And do higher prices imply that people will travel less and have less of an understanding of other regions? These questions are just a small sample of what investors should begin considering.

A few years ago, Professor Bartlett gave a compelling lecture, captured in a series of YouTube videos, to some students at the University of Colorado. In his lecture, he discussed oil demand growth. The lecture starts a bit slow; however, when you reach the latter part of the third video, you’ll see how the prior information is relevant to his discussion on oil. In other words, because they are important, don’t skip the initial video segments and jump to the third. I urge you to watch the complete video series.

And after you’ve watched the videos, ask yourself, “What time is it?” This question will make sense once you’ve seen the videos.

When I initially saw the WSJ article, I was drawn by the long term forecasts. My personal bias is that most longer term things in life are difficult, if not impossible, to forecast with any reasonable degree of accuracy. Then as I read the article, I saw the 1% growth number, which by itself seems very innocuous. But if you think about what 1% growth means over a long and sustained period, you quickly realize there are going to be changes. Moreover, the world has already witnessed a significant shift in oil prices over the last decade. We are no longer in our prior historical norm of $20-$30 per barrel. Some might argue that we are now in unchartered territory. As part of that possible unchartered territory, I wanted you to think about some larger questions. The questions mentioned in this article are just off the top of my head without much thought. I am sure you can think of many more. And last, I wanted to draw your attention to Professor Bartlett’s excellent lecture. His lecture will make you think about oil demand (and others) growth differently. I hope this article causes you to further your own research.

Source: Seeking Alpha, 08.11.2009

Filed under: Brazil, China, Energy & Environment, Mexico, News, Risk Management, Venezuela, Vietnam, , , , , , , , , , ,

Mexico the 2nd largest exporter of high technology to the U.S.

Mexico October 30, 2009. Mexico was the country with largest exports of high technology products to the U.S. during the first half of 2009, overtaken by China only.

According to the TechAmerica Foundation report, an association of worldwide innovative companies, Mexico has become the second most important supplier country for the United States.

Only in the early months of this year, the U.S. imported goods from Mexico for an amount exceeding $51.1 billion dollars, almost half of what China sells to the country.

Other U.S. suppliers were the European Union, with $34.4 billion dollars, Japan with $30.3 billion dollars, and Malaysia with 22.5 billion dollars.

In counterpart, the main markets for U.S. technology products were, in that order, the 1.European Union, 2.Canada and 3.Mexico. The market purchased goods worth $27.7 billion dollars during the first half of this year.

TechAmerica Foundation report notes that the fastest growing markets for U.S. exports are Brazil, Colombia, Belgium, Costa Rica , Venezuela, Argentina and Chile, in that order.

Source:E-Mid, 30.10.2009

Filed under: Argentina, Asia, Brazil, Central America, Chile, China, Colombia, Latin America, Mexico, News, Venezuela, , , , , , , , , ,

Latin America’s Pending Fire Sale

With multinational firms beating a retreat, local exporters under siege and plenty of overleveraged multi-latinas, private equity groups are licking their lips at the prospect of acquiring Latin American assets at fire-sale prices. Let the bidding begin.

John Price, Miami original article here

ImageExperienced Latin American investors understand that today’s financial crisis will present discounted buying opportunities to those with the authority and boldness to quickly negotiate an acquisition and the cash to pay for it. Six years of rapid growth in the region invited a lot of new players into the market, overcrowding supply in several sectors. Tight credit, faltering demand and falling prices put to the test the viability of many players, particularly recent entrants who may have overpaid to compete in the region. As a result, several sectors are overdue for some consolidation.

Different from the M&A dynamic of an expanding Latin America, acquisition opportunities present themselves very quickly in a down market, triggered this time around by exiting multinationals or over-indebted multi-latinas. After building a significant presence in Argentina, Brazil and Chile, Ryder Logistics, for example, was poised to enter the Colombian market in 2008 when global trade flows slowed and then collapsed, sparking a retreat by the company to its core NAFTA market position. Ryder’s exit from South America was swift and muted.

The financial need to focus on core and profitable markets is a strong motive for global firms to exit from Latin America, especially if they are recent arrivals still nursing a developing investment. Another motive may be the need to raise cash to repair a damaged balance sheet. RBS has been ordered by its new majority shareholder, the British Treasury, to shed assets, so it plans to sell operations of its subsidiary, ABN AMRO, in Argentina, Venezuela, Chile and Colombia. Retreating multinationals are the first and possibly the most attractively priced acquisition opportunities presented in the region.

The financial crisis hit Latin American markets anywhere from three to nine months after first striking in the U.S. It is only now that the need to consolidate in over-supplied sectors in Latin America is becoming evident. The first industries to feel the pain of falling demand are the region’s burgeoning commodity exporters. Junior mining companies in Peru and metal manufacturers in Argentina and Chile all share in common a rapid fall from grace as prices collapsed and their debt servicing costs skyrocketed thanks to scarce corporate credit. Cut off from capital markets, junior mining companies are busy flogging their new exploration properties in South America to the handful of cash-rich mining majors. But there are too many junior mining companies looking for too few majors, leaving many stranded and ready to sell to financial investors at discounted prices.

In Mexico, auto parts exporters have watched their U.S. customer demand collapse as two of three U.S. major car companies faced bankruptcy. The top 10 Mexican auto parts product category exports are anticipated to drop 50% from $53 billion in 2008 to $26 billion in 2009. The capital intensive industry cannot survive intact under the scenario of losing half of its revenue. During the last few years, many of Mexico’s auto parts exporters were able to borrow in dollars at historically competitive rates, assured of demand in the U.S. Now, with a devalued currency and rising corporate debt pricing, the Mexican auto parts sector is under attack from the revenue and cost sides of the ledger.

Across Latin America, trade with the U.S. will decline close to 40% in value and an estimated 10%-15% in volume. That will place enormous pressure on international cargo players, particularly air cargo in and out of South America, as well as cross-border trucking between the U.S. and Mexico. Latin American players in the space grew market share over the last six years, their expansion fuelled by access to cheap debt. They face the same margin squeeze as auto parts exporters with falling demand, weakened prices and growing finance costs.

After retreating multinationals and exporters under siege, the third source of distressed assets evolving from this crisis will be capital intensive service sector providers that took on too much debt too quickly in their effort to grow over the last six years. Retailing, consumer credit, construction, and tourism are all sectors that enjoyed spectacular growth and intra-regional investment in recent years.

Consumer credit grew by an average of over 20% per year between 2000 and 2007 (see Birth of a New Banking Model, Kroll Tendencias, April 2007). Construction grew on the heels of government spending while fiscal budgets in most countries expanded at 10%+ per year over the last five years. Latin American retailers like Pao de Açucar, Falabella and Soriana all fought back against the wave of foreign retailer investment and staked their claims, particularly in middle markets. Latin American hoteliers grew in multiple segments and now face falling demand from both international and domestic tourists. All of these industries were over built and face consolidation. The trigger point will be expiring debt contracts that force these over-leveraged players to shed non-core assets.

Due Diligence Is Key

All three areas of acquisition opportunity reward speed and boldness, the operational advantages of private equity and venture capital, as well as wealthy individuals in the region. The private equity sector raised record cash from 2006 to 2008 and is waiting patiently on the sidelines for the fire sale to commence. Strategic investors can join the party of buyers as well, but must take pre-emptive steps if they are to compete. They will need to line up funding from head office ahead of negotiations, much like a first time house buyer. Most importantly, strategic buyers need to identify targets with sufficient time to conduct reputational due diligence before engaging in negotiations, when financial and legal due diligence activities usually begin. In a time-compressed buying process, due diligence must be swift and pre-emptive.

Due diligence must also be thorough. Fire sales are fraught with risk because the seller is operating from a position of weakness and has every incentive to hide potential liabilities in the hope of pushing through a quick sale that preserves maximum value of its assets. Certainly, the ability to purchase discounted assets allures buyers, but the degree of liability can often overshadow the rewards. The most common liability of cash-strapped companies is the non-payment of taxes, particularly value added sales taxes, a form of tax evasion that is a criminal offense for business owners and board members in some Latin American jurisdictions. Other liabilities include unpaid worker wages, AML non-compliance, FCPA non-compliance, as well as internal fraud. Understanding these issues ahead of negotiation may be the key to purchasing at fair market value. Knowing the full extent of any liabilities may be vital to avoiding a regretful acquisition.

The Author: John Price ( // <![CDATA[// <![CDATA[
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jwprice@kroll.comjwprice@kroll.com// <![CDATA[// <![CDATA[
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) is Managing Director of Business Intelligence at Kroll Latin America and based in Miami.

Source: Kroll Tendencias Infoamericas, August 2009


(Note: This article first appeared in the Latin American PE VC Report, the official newsletter of the Latin American Venture Capital Assoc. (LAVCA). You can access the report at www.latinamericapevcreport.com .)

Filed under: Argentina, Brazil, Chile, Colombia, Latin America, Mexico, News, Peru, Services, Venezuela, , , , , , , , , ,

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