Latin Finance - May/June 2009 - 22

though a first attempt at selling the concession failed in March. Beware Mexican Industrials Jamie Nicholson, head of corporate debt research at Credit Suisse, recommends avoiding Mexican industrials and buying consumer plays in the media and telecom sectors, both in Mexico and Brazil. “This is a more resilient sector and the companies here generally have a good liquidity position,” says Nicholson, who likes América Móvil, Televisa and NET Serviços. Analysts also see Telemar as having strong cash generation. Standard & Poor’s agrees, and in April, it placed a positive outlook on América Móvil’s BBB+ rating. The telecom behemoth is regionally diversified and its services are far from the first to be cut during a downturn, say analysts. Meanwhile, Colombia’s EEB and TGI also offer compelling investment metrics, in part due to the sturdy regulatory framework under which they operate, and the natural FX protection from dualcurrency revenues. TGI is aiming to go public as soon as markets allow, and the Better media/telecom than industrials: Nicholson firm wants to have an RFP to banks out by mid-year. An equity offering should bolster the company’s capital structure, which today includes 60% debt and 40% equity, even more. Similar to Colombian energy utilities, Mexican housing leaders Homex and Urbi benefit from a sound funding structure provided by the government and its various housing agencies, notes RBS’s Holsberg. “These are BB/BB- credits which are trading in line with B+ Latin peers. The whole group offers attractive current yields in the mid-teens relative to the risk.” While many parts of LatAm are still on the downward half of what could likely be a V-shaped recession, the prospects for the region’s recovery are unclear. At the World Economic Forum summit in Rio mid-April, Brazilian corporate executives and investors held the view that a bounce was in the cards in the coming several months for Brazil. Mexico, on the other had, is not only openly exposed to some of the more noxious elements of the US downturn, including direct exports to its northern neighbor, but many of its companies developed a taste for complex financial instruments they did not understand. The combination has been lethal and the recovery for Mexican companies will likely take longer to pan out. LF Colombia Dodges Derivatives Bullet oreign investment banks all seek to do business with Colombia’s top tier, including Empresas Públicas de Medellín, Cementos Argos, Ecopetrol, ISA, Isagen, and Grupo Nacional de Chocolates. They are up against formidable opposition from the indigenous Bancolombia and Banco de Bogotá, which provide clients with the lion’s share of financial services. And while some complain that their Medellín and Bogotá-based clients are slow to move on a trade, they keep the country’s corporates high on the coverage agenda. While some of them have track records in international capital markets, Colombian companies have avoided the damaging derivatives problems seen in Brazil and Mexico. This is partly due to the local market being relatively undeveloped. Beyond local TES and corporate bonds, there is little in the way of local derivatives, and a futures platform for domestic fixed income is still in its infancy. Regulation also helps. “After major financial crises in 1984 and 1999, there was much stronger regulation of our financial sector,” says Jorge Pinzón Barragán, CFO of energy transportation company EEB. “That’s one of the reasons the company has been sheltered [during this past crisis],” he adds. “The mentality here is very conservative. And we not allowed to enter into very complex trades,” Barragán says. Over the past three years, Colombia’s central bank and finance F ministry have taken strict measures to stifle a flow of hot money into the country, knowing that in the past, financial and real estate participation had caused high correlation with fickle international flows. The central bank raised domestic bank reserve requirements and set up a series of capital controls to stem short term investments from abroad, including some types of derivatives. Investors and sell-side analysts slammed the moves, which appear to have turned out right for Colombia. “The risk of currency and maturity mismatches have been held at bay by the capital control measures,” says Jose Dario Uribe, president of the central bank. “The counterparty risk in the foreign exchange market has receded as a result of the limit on the gross foreign exchange derivative positions, he adds. EEB and its operating subsidiary TGI have some $1.3 billion in recently issued outstanding debt. Protecting peso-denominated revenues from volatile swings in the currency has been a major concern, says Pinzón. Luckily, up to 70% of TGI’s revenue, or $110 million, is denominated in dollars, which covers 100% of the company’s dollar interest service, he adds. Currency swaps into dollars help cover the notes’ principal, he adds. Excess cashflow, some $200-$250 million per year, is invested in local short term deposits, local TES, or in offshore investments rated A+ or higher, including US Treasuries. -- Dan Shirai 22 LATINFINANCE May/June 2009

Latin Finance - May/June 2009

Table of Contents for the Digital Edition of Latin Finance - May/June 2009