Latin Finance - July/August 2010 - 2

Front Notes

What BP Means for Brazil
A
s if Brazil needed any more good news, BP’s nightmare in the Gulf could end up being yet another dream come true for South America’s hottest economy. US oil producers look set to favor onshore over offshore production, and there is an immediate shift away from the Gulf of Mexico. Idled equipment in that area will be deployed elsewhere, freeing up rigs for Petrobras. As much-needed hardware works its way to Brazil’s deepwater oil fields, industry experts say the boost could accelerate production by as much as three years. Petrobras may even find cheaper leasing rates on some of the rigs. While pollution in Louisiana and Florida raise popular ire, a knee-jerk reaction against deepwater LatAm drilling is highly unlikely. Brazil can probably argue that it has managed its oil industry better than the US government. And while some environmentalists may scream foul, the stakes are simply too great for Brazil not to proceed with drilling. Lula hails the deposits – buried under miles of ocean, earth and salt – as the nation’s future. In addition, it’s no foreign operator skirting industry best practice that will be doing the work: engineers working at state-owned Petrobras will be monitored very closely to make sure they have learned from BP’s mistakes. Oil companies should now appreciate the benefits of spending on prevention over shelling out for clean up, even if they only consider the impact on the share price. The potential negative for project finance banks is that they will have to be much more careful on their drill rig due diligence. They may find it harder to get deals done, and spreads will likely widen unless borrowers stick to limited clubs, say bankers. The US catastrophe is yet more reason to buy LatAm and sell G7 assets. However, the trade is getting very crowded and the best first quarter growth numbers in 15 years fuel concerns that Brazil really is overheating. The rate at which the sell-side is revising its forecast for Brazil suggests they will be calling for high double digits by the end of the third quarter. However, there are some serious blockages, not least lack of infrastructure capacity, that are fuelling inflation. Anecdotal evidence suggests prices are already going through the roof, even for basic foodstuffs in some parts of São Paulo. When the Brazil business hub seems overly expensive to Manhattan-based investment bankers, it’s time to seriously reassess valuations. Another big fundamental boost in the form of accelerated oil production creates another high quality problem for the next Brazil administration. It should take BP’s complacency, mismanagement and subsequent disaster as a jarring wake up call.

EDITOR James Crombie SENIOR REPORTER Ben Miller REPORTER Taína Rosa CONTRIBUTORS Nacha Cattan, Lucien Chauvin, Sean Mattson, John Rumsey ART DIRECTOR Rosa Matamoros-Sense COVER ILLUSTRATION Cooper Kelly COMMERCIAL DIRECTOR James Norton DIRECTOR OF BUSINESS DEVELOPMENT Teresa Aguilar REGIONAL DIRECTOR, BRAZIL J. Albert Negrón SENIOR MANAGER, MEXICO, CARIBBEAN, SOUTHERN CONE Arielle Schrader MANAGER, CENTRAL AMERICA, BOLIVIA & ECUADOR Isabella Toro VENEZUELA REPRESENTATIVE Matthew Perks T +1 718 260-8970 SENIOR EVENTS MANAGER Omar Suarez EDITORIAL DIRECTOR, CONFERENCES & SPECIAL PROJECTS Michael Brosgart EVENTS PROGRAMMER Cate Doyle EVENTS MARKETING MANAGER Alex Rubin EVENTS MARKETING Audrey Cechinel GROUP MARKETING MANAGER Louis Cassetta MARKETING MANAGER Hilary Neil CIRCULATION MARKETING MANAGER Patricia Arcic OFFICE MANAGER Teresa Romero ASSISTANT TO THE CEO Vicky Maqueira NETWORK ADMINISTRATOR Lukasz Przybyl LATINFINANCE BOARD OF DIRECTORS PRESIDENT Christopher Garnett DIRECTORS Stuart Allen, James Crombie, Colin Jones, Giuliana Moreyra CHIEF EXECUTIVE OFFICER & PUBLISHER Stuart Allen CHIEF OPERATING OFFICER Giuliana Moreyra

Trading the Polls
As Colombians voted for president in May, investors worried about the high likelihood of victory by a man who once dressed as a superhero. Commentators were all but calling the bearded iconoclast a shoe-in for president as pollsters forecast a backlash against Álvaro Uribe and revolt against Colombian politics as usual. Mathematician, philosopher, and politician Antanas Mockus – who was recently diagnosed with Parkinson’s disease – did a brilliant job as mayor of Bogotá. His record on security and tax collection seemed to overcome reservations some Colombians might have had about electing a Green Party leader. Voters appeared not to mind that Mockus once mooned an auditorium of students, or married a social worker in a circus while riding an elephant. However, once alone in the polling booths, Colombians swiftly thought twice. What was forecast as a photo-finish turned into near landslide for Mockus’ opponent, the relatively stodgy defense minister Juan Manuel Santos. Even though Santos failed to clinch it the first time round, he went into the June run-off almost certain to become president. The scion of an elite family, Santos had a 25-point lead over Mockus after almost tying with him in opinion polls. The political heir to staunch Washington ally Uribe, who steps down in August, will be a boon to the international buyside hoping for more of the same. The LatAm electoral calendar is filling up, most importantly in Brazil, Mexico and Peru. Investors need to take regime change very seriously and carefully weigh all options. They must also take opinion polls with a pinch of salt. LF

Telephone: +1 305 416-5261 Fax: +1 305 416-5286 E-mail: editorial@latinfinance.com www.latinfinance.com Subscriptions hotline: U.S. +1 800 437-9997 +1 212 224-3570 U.K. +44 (0) 870 906-2600 E-mail address: subscriptions@latinfinance.com
Subscriptions: one year magazine only $495. Premium subscriptions $2,499 Send subscription orders to: LatinFinance, 1101 Brickell Avenue, Suite N1200, Miami, FL 33131 USA T 305-416-5261, F 305-416-5286. Copyright© 2010 Latin American Financial Publications, Inc. is owned by Ell Holdings, Inc. All rights reserved. Reproduction in whole or in part of any text, photograph, or illustration without written permission from the publisher is strictly prohibited. Title is protected through a trademark registration with the US Patent Office. Indexed in Information Access Company.

Have your say. Contact us at editorial@latinfinance.com
2 L ATIN F INANCE July/August 2010

http://www.latinfinance.com

Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010