Apec Business Newsletter
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Issue 02 - October 2008
Business News Americas David Roberts Managing editor Raúl Ferro Editor, Content Development Editors Ulric Rindebro, Finance Greta Bourke, Infrastructure/Water & Waste Laura Superneau, Mining & Metals Randy Woods, Energy/Oil & Gas Christian Molinari, Telecom/IT
The APEC Business Newsletter INDEX OP - ED
2
Mining and Metals
3
Oil and Gas
4
Electric Power
5
Water and Waste
6
Infrastructure
7
Telecom
8
IT
9
Banking
10
Insurance
11
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OP-ED
The political risks of the global financial crisis in Latin America By Raúl Ferro
T
he time has come to start getting jittery. The excessively ideologized, a phenomenon that has prompted economic disaster shaking the world from Wall US authorities to turn a deaf ear to market signs. One of Street has finally reached the point where the the simplest examples is the White House’s insistence on question is no longer whether it will affect the Latin reducing taxes despite a devastating spike in the federal American economy, but rather how. government’s fiscal deficit. The deepening of the crisis, however, hasn’t changed one Despite this, it’s important to remember that the market element in particular that was key to previous analyses: the majority of countries in the region are better prepared to face economy has brought society a high degree of well-being and prosperity. It’s enough to observe the advances in the storm than they had been previously, albeit some more economic growth and poverty reduction in Latin American than others. countries that have adopted the system over the past 20 Paradoxically, these countries are the ones employing the years. most prudent economic policies and are therefore more aligned with the common feeling toward the market economy This might be a difficult point to concede for someone who has watched his pension fund shrink and appear strongest. 15-20% over the past few weeks. Less orthodox countries are also But historical evidence shows that enjoying solid macroeconomics, but The crisis also brings the market as a system - not as an might be more vulnerable because ideology - is the one that sets the of their penchant for keeping public political risk for Latin most solid of bases for development. spending high and because they America as it threatens to And if something doesn’t function utilize economic controls that end up well, leaders shouldn’t be afraid of derailing the equilibrium and creating discredit the free market as regulating it. We’re not talking about distortions. a system. the types of regulations that award But the crisis also brings political risk absolute decision-making powers for Latin America as it threatens to to bureaucrats. We’re talking about discredit the free market as a system. practical regulations that serve to Several leaders throughout the region have ventured prevent and correct the potential excesses that can be borne comments that the crisis is proof of the system’s fallibility. from an open economy. Some, like Argentina’s President Cristina Fernández, predict In these times when emotions outweigh reason, it’s important the collapse of the first world. Others, like former Chilean for regional leaders to focus on a rational analysis of the President Ricardo Lagos, conjure up the image of profits being private but losses social. While it’s true that the current problems besetting the world and not to allow themselves to crisis is the result of gross excesses by the financial industry be tempted by easy and opportunistic discourse. The worst thing that could happen in Latin America would - and aggravated by the misguided economic management be if countries were to backslide and reconsider their choice of President Bush - the problem is not the system itself. of the market economy as a framework for the region’s It lies in the faulty regulation of financial markets. In economic and social development. the last eight years, economic management has been
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Mining and Metals
Mining continue moving forward
to global financial turmoil. Casposo is expected to have annual production of 63,000oz gold equivalent over a 5.5-year mine life, with capital costs estimated at US$86mn. Production was slated to start in the third quarter of 2010. Brazil - National development bank BNDES anticipates iron ore prices will decline in the next two years but not to “alarming” levels. - Vale closed a shipping contract with British steelmaker Corus to supply 63Mt/y of iron ore for the next five years.
The drop in metals prices around the world not only continued to spark a degree of concern on the part of miners this week, but it’s now starting to impact the strategic outlooks of more and more companies. Although most in the industry have remained silent until now on how they will approach declining prices, more companies in the recent week have started alert cutbacks to tackle the trend, which threatens to cut into margins. US-based Freeport-McMoRan Copper & Gold said it is considering changes to its growth projects and cost structure in light of falling copper prices. The largest publicly-traded copper producer in the world, Freeport-McMoRan has seen its main product plummet in value from a nominal record of US$4.08/lb cash on the London Metal Exchange July 3 to US$2.21/lb cash on October 14. Diminishing silver prices have also prompted Vancouver-based
Chile -Chile’s Escondida, the world’s largest copper mine, has declared force majeure on sales contracts for nine months due to the technical failure of the SAG mill at its Laguna Seca plant. The SAG mill stoppage will likely cause a 15% drop in concentrate production that will translate into a 10% drop in annual refined copper output. Escondida, in northern region II, produced 725,177t of copper in this year’s first half. BHP Billiton owns 57.5% of the mine, leaving 30% in the hands of Rio Tinto (LSE: RIO), 10% with Japan’s JECO corporation and 2.5% with the World Bank’s International Finance Corporation. - In light of plummeting copper prices that raise the question of how low they can fall before triggering mine shutdowns and massive project cancellations, Alfredo Ovalle, the president of Chile’s private miners association Sonami, said the metal can fall to US$1.80/lb and still remain attractive. - Vancouverite Coro Mining said it will not exercise its option to acquire the Cerro Negro copper mine in region V due to unfavorable market conditions.
Although credit is apparently out of reach for juniors with no production in sight, a precious few that are eyeing output have been able to obtain funding, either through equity or debt. Endeavour Silver, which has two mines in Mexico, to slow production growth in the fourth quarter. In Brazil, mining giant Vale is also concerned with ore prices. In the last month or so, Vale has been threatened by a Chinese steelmaker boycott because the company wants to increase iron ore prices 65%. Meanwhile, multinational bank UBS published a report forecasting contract iron ore prices will drop 15% in 2009, which would represent the first decline in seven years.
Peru - Chinese aluminum and copper producer Chinalco said it is not backing off from US$2.2bn in investments for 2008-11 at its Toromocho copper project despite lower red metal prices. - Precious metals miner Buenaventura approved the issue of US$350mn in unsecured notes but said it plans to wait for better market conditions before emitting them.
Also in Mining: Argentina - Australia-based Intrepid Mines said construction at the Casposo gold-silver project in San Juan province will be postponed due
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Regional - Anglo-Australian miner Rio Tinto is looking to take advantage of the recent market turmoil and the deepening credit squeeze to acquire projects from distressed juniors, according to mining analyst John Meyer with investment bank Fairfax.
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Oil & Gas
Exploration: Peru prepares new licensing round for 2009
enough gas in block 56 to ensure exports. The Camisea consortium earlier this week started commercial production from block 56, which will churn out 300Mf3/d (8.5Mm3/ d) in its first phase.
The INGEPET oil and gas conference in Lima in mid October was full of talk about the country’s ongoing “petrogate” scandal, in which mines and energy ministry officials were allegedly bribed by the Petroperú-Discover Petroleum International consortium to win five blocks in this year’s bidding round. While the country’s congress and comptroller are investigating the alleged irregularities and Norway-based Discover denies any wrongdoing, Peruvian officials stressed that existing oil and gas contracts in the country would not be changed. Government officials and some in the local media had expressed concern that the scandal could worry investors about the status of their existing contracts. Daniel Saba, the chairman of oil and gas promotion agency Perupetro, assured investors and said that existing contracts were “untouchable.”
Also this week in Oil & Gas: Bolivia - Civil engineering works for the US$90mn Río Grande natural gas liquids separation plant were started. In July, state-owned YPFB awarded Argentine-Bolivian group Catler Uniservice a turnkey contract to build the plant which is due to be ready in a year. Brazil - Federal energy company Petrobras discovered new signs of oil in the Campos, Santos, Espírito Santo and Sergipe-Alagoas basins. - Container terminal operator and port logistics company Wilson Sons received a US$896mn loan from the country’s merchant navy fund to finance the construction of new oil tankers. - Petrobras awarded Norwegian group DOF and its subsidiary DOF Subsea a US$81.6mn, three-year charter deal for a ROV support vessel. - Petrobras still plans to publish this year its revised strategic plan despite the global financial crisis that has been pummeling international markets. Petrobras’ board was due to meet on October 17 to evaluate its 2009-13 investment plan.
Daniel Saba, the chairman of oil and gas promotion agency Perupetro, assured investors and said that existing contracts were “untouchable.” President Alan García reshuffled his cabinet in light of the affair, replacing mines and energy minister Juan Valdivia with Pedro Sánchez Gamarra. Peru’s government, meanwhile, is preparing a new licensing round for 2009, Saba also announced at the conference. The blocks, which have yet to be finalized, will include both areas for oil and natural gas prospection. An announcement with more details on the round is expected in the coming months. But foreign investors may not be getting everything they want, as government officials decided to keep one of its most prospective blocks for domestic use only. US company Hunt Oil, a member of the Camisea upstream consortium that produces gas for export, previously opposed the government’s idea to set aside block 88 for domestic use. But now Pluspetrol, another member of the Camisea group, believes there is
Colombia - Nearly US$140mn will be spent over the next two years to develop the first ethanol plant to be built by Colombia’s state oil firm Ecopetrol. The plant, to be located in Meta department, will have daily capacity of 330,000l and produce ethanol from sugarcane. Mexico - US offshore services company Global Industries was awarded a US$46mn project for pipeline work by Mexico’s state oil company Pemex. The work will be focused on Pemex’s Ku-Maloob-Zaap project in the Campeche bay. - US financial services firm ICP Capital structured and arranged a US$121mn financing package for the acquisition of two ships for Mexican offshore services firm Blue Marine Shipping. The vessels will be leased to Pemex’s refining subsidiary Pemex Refinación.
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Electric Power
New Energy and Mines minister in Peru
project entails a 1m3/s desalination plant and a 500MW gas-fired plant. The winner will have 80 days to complete the evaluation.
Also in Electric Power:
World financial markets are not the only ones in disarray as evidenced by Peru’s Petrogate scandal involving alleged irregularities in the awarding of oil contracts. This episode led to the resignation of the energy and mines minister and eventually the entire cabinet. After the cabinet shakeup, Pedro Sánchez Gamarra was appointed to the ministry’s top post, which had been headed by Juan Valdivia. Sánchez’s appointment has been applauded due to his power sector experience, which comes at a time the country faces a tight supply-demand scenario. The new minister is an expert in energy regulation and investment promotion and holds a master’s from George Washington University and an MBA from Peruvian business school Esan. He was executive director of Peru’s former private investment agency Copri - now ProInversión - and served as board president of several power utilities.
Brazil - Power company MPX Energia signed a preliminary EPC contract with Italian power plant developer Maire Tecnimont to build the third line of the 360MW second phase of the Porto do Pecém thermo plant. The signing of the 245mn-euro (US$335mn) definitive agreement with Maire Engineering do Brasil is expected by month-end. - Power regulator Aneel authorized two companies to start developing two thermo plants totaling 32.6MW installed capacity. Aneel will allow sugar and ethanol producers Usina de Açúcar Santa Terezinha and Usina Frutal Açúcar e Álcool to install a 16.5MW thermo plant in Paraná state and a 16.1MW thermo plant in Minas Gerais state, respectively. Chile - Environmental regulator Conama approved the EIS for the US$200mn Ñuble hydro plant being developed by local power company CGE in region VIII. The 136MW run-of-the-river plant will be connected to the central SIC grid and generate roughly 700GWh/y. - The Norgener subsidiary of Chilean generator AES Gener submitted an EIA for the 153km Angamos-Encuentro high-voltage transmission line planned for northern region II. The line will run from a branch of the Angamos-Atacama line under development in port town Mejillones to the Encuentro substation in María Elena municipality.
The appointment of Sánchez Gamarra as minister of energy and mines has been applauded due to his experience, which comes at a time the country faces a tight supply-demand scenario The country will produce an estimated 33.5TWh this year to meet rising demand from increased mining activity and the country’s continued economic expansion, economists at consultancy Maximixe told BNamericas. The Maximixe forecast would mark a roughly 10% increase in production over 2007. To meet increasing demand, the ministry has awarded dozens of temporary concessions to carry out studies on new generation projects as well as authorizations to move forward with more advanced projects. Case in point, the ministry authorized Fénix Power Peru to develop a 597MW combined cycle thermo plant in Chilca, south of Lima. The company has 36 months to carry out works. And staying in Peru, consortium Cesel-Cial was the only group to qualify to carry out a technical and economic evaluation of a private desalination initiative and thermo generation project. The
Venezuela - Government officials laid the first stone at the 330MW Termocentro thermo plant in Valles del Tuy, Miranda state. The plant is due to start operations in June 2009 and will supply the capital region. Plant capacity will grow by another 920MW in 2010. The energy and oil ministry expects the plant to reach 2.15GW, supplying 5mn residents for total investment of US$2.3bn. - The ministry also announced that an industrial park under construction at the Santa Inés oil refinery in Barinas state will include a 100MW plant.
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Water & Waste
Global warming hits South America water reserves
solve their financial difficulties without disregarding this issue. For some companies, riding out the financial crisis is about survival. However, surviving another day makes no sense when the date for an execution has been set.
On October 13, a spokesperson for electricity firm Duke Energy, Tom Williams, was quoted as saying in the Uruguayan press that the world economic crisis is likely to take its toll on global warming, as reducing greenhouse gases is no longer the first priority for a number of companies. Reducing greenhouse gases “has clearly fallen to second priority due to the economic scenario we face,” Williams said. Duke Energy is part of US-based association Climate Action Partnership, which comprises firms and non-profit organizations that have supported the passing of a bill in the US congress to reduce greenhouse gas emissions. Williams added that, according to studies, South America’s water reserves are the world’s resources most affected by global
Also in Water & Waste: Chile - In order to evaluate their overall impact, large-scale agricultural projects should form part of the national EIS system, Chilean water authority DGA general director Rodrigo Weisner said, adding that irrigation uses by far the highest percentage of water in the country. - The sale of water company Aguas Nuevas, owned by the Solari group, has been put on hold. The operation has not been cancelled but all parties have agreed to put the operation on standby until the real impact of the financial crisis can be determined. Bolivia - Water minister René Orellana said that, to date, there are no companies interested in building the 120m-high dam in the Misicuni multipurpose hydro project. The tender process is still open and the Misicuni firm has US$30mn to carry the project, matched by the same amount from the national treasury and loan commitments from the Andean Development Corporation (CAF) and the Italian government.
South America, which holds most of the world’s potable water reserves, has seen rivers reduce their flow and glaciers retract due to rising temperatures. warming. The continent, which holds most of the world’s potable water reserves, has seen rivers reduce their flow and glaciers retract due to rising temperatures. While regional governments and associations are working together to monitor natural resources and are implementing a number of policies designed to reduce emissions and combat global warming, it is imperative that companies play their part and separate what is important today from what will be urgent tomorrow. When something is important, it can be moved up or down the priority ladder. Eventually, it will be dealt with after careful consideration. However, the thing about urgency is that it leaves no maneuvering room. Issues must be dealt with immediately, or the results will be disastrous. Global warming is an urgent issue. It is upon us now. There is no more wiggle room left. Therefore, companies across the region must look at things from a broader perspective and find a way to
Mexico - National water authority Conagua is planning to invest US$2.87bn through 2012 to improve hydro-agricultural infrastructure. Perú - ProInversión, the state agency for the promotion of private investment, does not think the international crisis will affect investor interest in the country’s concessions. However, in some cases, firms requested the extension of deadlines to present proposals. This was the case in the Huascacocha-Rímac water transfer system and the electric train project, both in Lima. - National sanitation authority Sunass will implement a trust fund for companies to guarantee low interest financing for industrial wastewater treatment initiatives. The entity will also officially launch differentiated water rates for firms that invest in wastewater treatment in November.
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Infrastructure
New infrastructure fund in Colombia
Also in Infrastructure: Ecuador - State entities are looking for a legal way to terminate contracts with Brazilian engineering firm Odebrecht following a decree signed by President Rafael Correa on October 9. Four of Odebrecht’s five contracts in Ecuador total US$713mn. The projects that have been passed onto state hands are the Tena airport, the Toachi-Pilatón and Baba hydroelectric projects, and the Carrizal-Chone irrigation initiative. - The public works and transport ministry will invest about US$69.3mn in the rehabilitation of a highway in Morona Santiago province. The 151km highway connects districts Méndez and San José de Morona.
The announcement by Colombia’s finance ministry that it had signed a memorandum of understanding to create a US$500mn infrastructure fund with local pension fund managers (AFPs) and insurance companies, as well as a number of multilateral entities, is the culmination of hard work. It also comes at a critical time for the country’s development plan which needs to succeed regardless of the global financial crisis. Since 2006, the country’s planning department and finance ministries have been working with AFPs and the IFC to create a framework for the AFPs to invest in infrastructure. In August this year, finance minister Óscar Zuluaga confirmed the plan but declined to comment on a startup date. Then, in September, Andean Development Corporation (CAF) infrastructure VP Antonio Juan Sosa said the entity was part of a committee to advance the creation of a vehicle of this nature.
Brazil - President Luiz Inácio Lula da Silva announced that infrastructure projects would not be halted due to instability in international markets. He said that activities for the country’s growth acceleration plan PAC would continue as planned, adding that he is certain that investments by big companies will not be affected.
While the government can participate in the fund, the idea is to have a corporate administration and the autonomy to decide where and how to invest.
Panama - Panama Canal Authority (ACP) CEO Alberto Alemán does not expect the global credit crisis to have any impact on the cost of financing for the US$5.25bn expansion project. - Meanwhile, President Martín Torrijos officially announced the final financing structure for ACP’s expansion project. The funding strategy aims to raise US$2.3bn from five major multilateral agencies.
IDB, CAF and possibly the IFC will take part in the up to 12-year fund, with Colombian export development bank Bancoldex also acting as a local partner. While the government can participate in the fund, the idea is to have a corporate administration and the autonomy to decide where and how to invest. The principal objective of the fund is not to contribute to the development of infrastructure but to generate profits for its associates, according to CAF. However, a fund of this nature will naturally help to strengthen the local economy because it will get financing for projects at a lower interest rate. So, the country can remain assured that there are resources for infrastructure development, in spite of the global financial crisis.
Mexico - The country’s biggest construction firm, ICA, does not expect its results for Q3 to experience any negative effects from recent fluctuations in the interest rate and foreign exchange markets caused by the global financial crisis. - However, the crisis has prompted the transport and communications ministry (SCT) to postpone tender calls for highway projects scheduled for late 2008. The decision affects the second and fourth packages contemplated in federal highway reconcessions program Farac.
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Telecom
Mexico pushes back auctions for 3G and WiMax
(US$4.5mn) in the red for Q3, versus a 41.2mn-real net profit in the same period in 2007. But the loss was mostly attributed to exchange rate losses in the period, related to outstanding dollar-based debt. The company is actually pretty much unfazed by the current worldwide financial situation, as it feels that telecommunications are basic services and a must-have for clients.
As markets in developed countries go to hell in a handbasket not considering the artificial bounce seen in reaction to billions of euros injected into the European market this week - it seems those developing countries located closest to the kitchen are starting to get burned. Mexico’s telecoms regulator Cofetel decided to push back auctions for WiMax and 3G spectrum licenses to next year due to the difficult global economic situation. “It is better to hold them back until the first quarter of 2009 in order to avoid spectrum being awarded but lying unused due to concessionaires lacking the liquidity to deploy the infrastructure,” Cofetel board member José Luis Peralta said. Another major issue is the risk of reaping less than the US$1bn they had expected to get from license payments. On the other hand, the largest country in the region, and one of
Also in Telecom: Regional - Possibly taking advantage of the current situation and dried up funds in the north, Montevideo-based Latin American wireless application services provider GlobalNet actually financed the US mobile application development company MobUI Corporation’s purchase of mobile application platform company Action Engine Corporation. GlobalNet will have an ownership stake in MobUI, allowing it to increase its technological offer while working with MobUI, which will create iPhone, mobile Web, and downloadable applications for major consumer brands. Neither the purchase price nor the amount of funding was reported.
One major issue behinds Mexico’s Cofetel decision is the risk of reaping less than the US$1bn they had expected to get from license payments.
Chile - Spain’s Telefónica came back to the negotiating table - despite expressing vehemently before that it would never sweeten an offer - and (surprise, surprise!) increased its offer by 10% for the acquisition of shares of incumbent Telefónica Chile. This is now to be voted on by minority shareholders. If the bid is accepted, Telefónica would pay a total of roughly 691mn euros (US$943mn) for the shares. - The supreme court heard the opening arguments in relation to a dispute over whether existing mobile operators should be allowed to participate in upcoming auctions for 3G licenses. Of the 90MHz available, telecoms regulator Subtel had hoped to reserve some 60MHz for a new operator that would focus mainly on providing value added services, while allowing the three existing operators Entel PCS, Movistar and Claro to compete for 10MHz each.
the farthest away from the northern hemisphere, Brazil, seems to be attracting attention. For example the Brazilian unit of US wireless and network equipment provider Netgear is expected to represent a whopping 50% of the company’s Latin American operations in 2009. At the same time, for the near future the company will continue business as usual and maintain direct operations in four countries - Argentina, Brazil, Chile and Mexico - instead of expanding in the rest of the region. Also looking to get a piece of the action, converged communications provider ATS partnered with Canadian mobile solutions provider Dialogic to launch video telephony solutions for 3G networks in the Brazilian market. They will focus on video surveillance and video marketing - the latter of which is a very good way of generating revenue from content distribution in video. One event this week that seemed to contradict this trend was Brazilian telephony and internet provider GVT’s falling 9.5mn reais
Colombia - President Alvaro Uribe ratified a law allowing the introduction of number portability, and the communications ministry has until the end of 2009 to carry out the necessary technical and economic impact studies. The total investment needed by operators to have the system up and running is expected to be US$50mn.
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IT
Security solutions market to grow 40% annually
infrastructure and wireless software provider Sybase. Latin American enterprises across all vertical markets are turning to mobility as a means to stay competitive, as mobility can both help companies operate more efficiently and improve customer satisfaction. - US IT services provider CSC expects revenues from Latin America to reach US$500mn-600mn in the next 2-3 years. The company recently established direct presence in Latin America by setting up regional headquarters in Chile. - South African ICT company Datatec posted global revenues of US$2.3bn in the first half of the year, up 18% compared to the same period last year. Latin American operations accounted for 9% of Datatec’s global revenues during the period.
This week’s sector headlines had news of major players in the Latin American IT security market flashing their armor. Regional security providers disclosed bullet-proof growth expectations, while several multinationals released rebuffed solutions aimed at keeping crucial client information firmly under lock and key. For example, Latin American network security solutions provider Etek said it expected the regional managed security solutions market to grow 40% annually to US$300mn in 2011, compared to US$100mn in 2008. The company believes the needs of information security are changing due to an increasing trend toward identity and access management, security, incident and event management, and information leak prevention. Meanwhile, Russian antivirus software developer Kaspersky Laboratories disclosed plans to expand in Chile next year due to
Argentina - IDC said it expects data centers to drive domestic external disk storage sales next year. Telecommunications companies specifically are turning to data centers to satisfy their storage space needs and those sales will compensate for a slowdown from other vertical markets, such as the financial sector. - IT solutions and outsourcing services provider Globant is looking to purchase companies to grow its value-added services. Globant, which delivers offshore IT outsourcing services with a broad portfolio of solutions including internet marketing and software development, is eyeing companies in both the US and Latin America, with special attention being given to Argentina, Colombia, Uruguay, Costa Rica, and the US.
The needs of information security are changing due to an increasing trend toward identity and access management, security, incident and event management, and information leak prevention. the country’s high rate of IT penetration. The company is looking to protect security gaps created by more advanced technology use. While Kaspersky is considering opening offices in Chile and in other parts of Latin America, the company is focusing on consolidating its presence through the strengthening of its channel partner training programs. Finally, US web filtering and desktop security software manufacturer Websense launched the Websense Web Security Gateway, aimed to protect a company’s employees and the data they manage when surfing the web. Besides protecting against malware, Data Security helps companies to stop data leakage.
Brazil - Latin American IT consultancy NetLogistiK disclosed plans to open an office in Brazil next year. Brazil represents an attractive market for the company due to the size of its economy. NetLogistiK would have rolled out operations earlier in the Latin American giant, but company plans were slowed by the language barrier. Chile -Chilean BI specialist Inys expects sales this year to reach US$4mn-4.5mn, compared to US$3.5mn in 2007. Inys is going through a three stage restructuring process. The first phase aims to reach US$6mn in revenues in 2009. The second phase is focused on regional expansion and is set to end in 2012. The third stage is consolidation, ending in 2015, when the company expects sales of US$20mn.
Also in IT: Regional - Mobility is becoming a top driver for IT development in Latin America, according to Irfan Khan, VP and CTO of US enterprise
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Banking
The first waves of the crisis hit Latin America
business. Lehman had local operations focused on securities trading and investment banking activities and had applied for a full investment banking license in July 2007. BTG however plans to discontinue the investment banking side of the group as well as the licensing process.
Latin America’s financial systems are increasingly impacted by the international financial crisis, especially in terms of liquidity, and multilateral lenders and local authorities are reacting quickly to make sure that impact is as limited as possible. The good news for the region so far is that governments have not been forced to rescue private sector banks from going bust like in the US and Europe. A host of multilaterals - with the World Bank’s IFC arm taking the lead - came out during mid October to promise several billion dollars worth of financial support for the region. IFC said it will make US$2bn available for its Latin American customers and SMEs to cope with the ongoing financial crisis. Up to US$500mn will go to microfinance and loans to Latin American SMEs through regional banks and microfinance institutions.
Also in Banking:
A host of multilaterals - with the World Bank’s IFC arm taking the lead - came out during mid October to promise several billion dollars worth of financial support for the region. The IFC funds will also support local financial institutions through its global trade finance program - providing short-term financing or equity to corporate customers - and key areas through specific funding packages. IFC also said it could mobilize another US$2bn in additional funds in collaboration with other multilaterals. IDB for its part pledged US$20mn to help Latin America’s microfinance industry face today’s tougher times, which threatens the industry with problems of liquidity, foreign exchange fluctuations and high inflation eroding borrowers’ purchasing power. Despite today’s difficulties in obtaining international funding, Chile’s fourth largest bank Bci managed to secure a five-year, US$150mn bullet structured credit with Banca Nazionale del Lavoro (BNL), a unit of BNP Paribas, to finance foreign trade operations. On the other hand, Banking and Trading Group (BTG) picked up the Brazilian operations of Lehman Brothers for an undisclosed sum with plans to continue growing its own asset management
Brazil - Some of the country’s largest banks, Banco do Brasil, Itaú, Unibanco and Bradesco, continued the trend of buying loan books from smaller banks, mostly payroll loans. Those purchases are part of a central bank-sponsored policy of freeing up funds for larger banks to buy loan books from smaller ones and as a result provide the latter with crucial liquidity. - Savings deposits in Brazil totaled US$113bn at end-September, up 18.1% from the same time last year. - Brazilian midsize bank Indusval will receive US$47mn and 7mn euros (US$9.5mn) in A/B loans from IFC, which will directly finance US$15mn of the total for three years under the A-part of the loan. The B-part will make up the rest of the total and be on a two-year timeframe. The loan was coordinated by IFC and the European operations of Brazil’s Banco Itaú with seven additional banks. - After announcing a US$1bn loan from IDB in early October, Brazilian national development bank BNDES said it was in negotiations to receive 3bn reais in loans from multilateral and international financial institutions in 2009. BNDES also said it would not be seeking out more international loans this year. Central America - The Central American Bank for Economic Integration (Cabei) and interdealer broker ICAP formed a JV to overcome the credit limitations that have slowed the development of the financial markets in Central America. The new company - called BCIEICAP Capital Market - will be able to provide a dynamic voice and electronic brokerage platform for Central American financial products, both within the region and globally. Peru Peruvian bank BIF is seeking a medium-term loan of up to US$50mn from IFC to expand its operations beyond its traditional focus on the corporate segment. The funds would help the bank target the mortgage and SME segments.
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Insurance
Pssst... wanna buy an insurance company?
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The question of what the general strategy for New York-based insurer AIG will be in light of its rescue by the US government has been answered loud and clear: sell lots of assets, even profitable operations in Latin America. In mid October, the company came out with its anticipated list of what’s for sale, saying that everything that wasn’t US P&C, foreign general insurance or a continuing interest in foreign life was on the auction block. This clearly put reinsurer Transatlantic Re, which has operations in Brazil, up for sale. But what did “continuing interest” in foreign life mean? It turned out it meant AIA, the Asian life insurer in which AIG hopes to sell a minority stake, but that AIG would be looking to unload parts of its ALICO unit, which has operations in Argentina, Brazil,
The fact is this is a situation without precedent in Latin America: a major insurer just giving up a tremendous position in markets across the region. Chile, Colombia, Mexico, Panama, Peru, Uruguay and Venezuela through a mix of wholly owned subsidiaries and joint ventures. AIG has said it wants to sell its asset in an orderly way, valuing big strong firms as potential buyers, presumably to keep transaction costs down and asset values up. However, the pressure on AIG to liquidate assets looks to be growing fast. In addition to the two-year US$85bn loan provided in the original bailout deal last month, the Fed also agreed to lend US$37.8bn to some of AIG’s domestic life insurance subsidiaries. The fact the company had already drawn US$61bn on the Fed’s original credit facility as of September 30 surprised many investors. So how fast is fast for these deals and how high is high for asset values? The fact is this is a situation without precedent in Latin America: a major insurer just giving up a tremendous position in markets across the region. We’ll just have to wait like everyone else to find out how fast it will go and what it’s worth on the market in these turbulent times.
Regional - Fitch sees the country’s insurance industry, which used to suffer relatively high loss ratios, as standing out among Central American nations, with continued improving financial performance after foreign companies took a greater share of the market. Fitch finds the country’s improving loss ratio levels reflect the combination of increases in premiums, better claims management and the more active role of the police in controlling car theft. Mexico - Criteria CaixaCorp, an investment holding company controlled by Spain’s La Caixa, completed the acquisition of a 20% stake in Mexico’s Grupo Financiero Inbursa for US$1.97bn. The transaction was announced last May, when the deal was worth some 1.5bn euros (at the time US$2.4bn). Chile - The government has announced it will lift a capital gains tax applied on foreign insurers, endowments and sovereign wealth funds that operate in Chile. The decision was part of a series of measures announced by both the finance and economy ministries to the tune of US$850mn to keep credit markets flowing and ease access to financing for local exporters and SMEs. Brazil - Local reinsurance broker Especializada Re signed an agreement with US-based insurance broker and risk services firm Collins for consulting and correspondent broker services. - Insurance regulator Susep allowed federal reinsurance company IRB-Brasil Re to allow IRB to continue to perform risk retrocession for reinsurers outside Brazil until end-December. Previously, IRB’s special retrocession coverage authorization was scheduled to end October 17. There are currently only two other authorized local reinsurers, Munich Re and J Malucelli Re, with US-based ACE, Spain’s Mapfre and XL Re still awaiting final approval. - Brazilian federal government-controlled reinsurer and former monopolist IRB-Brasil Re increased profits to the equivalent of US$114mn in the first eight months this year, up 11.3% in reais from the same period last year.
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OP-ED
The political risks of the global financial crisis in Latin America By Raúl Ferro
T
he time has come to start getting jittery. The excessively ideologized, a phenomenon that has prompted economic disaster shaking the world from Wall US authorities to turn a deaf ear to market signs. One of Street has finally reached the point where the the simplest examples is the White House’s insistence on question is no longer whether it will affect the Latin reducing taxes despite a devastating spike in the federal American economy, but rather how. government’s fiscal deficit. The deepening of the crisis, however, hasn’t changed one Despite this, it’s important to remember that the market element in particular that was key to previous analyses: the majority of countries in the region are better prepared to face economy has brought society a high degree of well-being and prosperity. It’s enough to observe the advances in the storm than they had been previously, albeit some more economic growth and poverty reduction in Latin American than others. countries that have adopted the system over the past 20 Paradoxically, these countries are the ones employing the years. most prudent economic policies and are therefore more aligned with the common feeling toward the market economy This might be a difficult point to concede for someone who has watched his pension fund shrink and appear strongest. 15-20% over the past few weeks. Less orthodox countries are also But historical evidence shows that enjoying solid macroeconomics, but The crisis also brings the market as a system - not as an might be more vulnerable because ideology - is the one that sets the of their penchant for keeping public political risk for Latin most solid of bases for development. spending high and because they America as it threatens to And if something doesn’t function utilize economic controls that end up well, leaders shouldn’t be afraid of derailing the equilibrium and creating discredit the free market as regulating it. We’re not talking about distortions. a system. the types of regulations that award But the crisis also brings political risk absolute decision-making powers for Latin America as it threatens to to bureaucrats. We’re talking about discredit the free market as a system. practical regulations that serve to Several leaders throughout the region have ventured prevent and correct the potential excesses that can be borne comments that the crisis is proof of the system’s fallibility. from an open economy. Some, like Argentina’s President Cristina Fernández, predict In these times when emotions outweigh reason, it’s important the collapse of the first world. Others, like former Chilean for regional leaders to focus on a rational analysis of the President Ricardo Lagos, conjure up the image of profits being private but losses social. While it’s true that the current problems besetting the world and not to allow themselves to crisis is the result of gross excesses by the financial industry be tempted by easy and opportunistic discourse. The worst thing that could happen in Latin America would - and aggravated by the misguided economic management be if countries were to backslide and reconsider their choice of President Bush - the problem is not the system itself. of the market economy as a framework for the region’s It lies in the faulty regulation of financial markets. In economic and social development. the last eight years, economic management has been
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Mining and Metals
Mining continue moving forward
to global financial turmoil. Casposo is expected to have annual production of 63,000oz gold equivalent over a 5.5-year mine life, with capital costs estimated at US$86mn. Production was slated to start in the third quarter of 2010. Brazil - National development bank BNDES anticipates iron ore prices will decline in the next two years but not to “alarming” levels. - Vale closed a shipping contract with British steelmaker Corus to supply 63Mt/y of iron ore for the next five years.
The drop in metals prices around the world not only continued to spark a degree of concern on the part of miners this week, but it’s now starting to impact the strategic outlooks of more and more companies. Although most in the industry have remained silent until now on how they will approach declining prices, more companies in the recent week have started alert cutbacks to tackle the trend, which threatens to cut into margins. US-based Freeport-McMoRan Copper & Gold said it is considering changes to its growth projects and cost structure in light of falling copper prices. The largest publicly-traded copper producer in the world, Freeport-McMoRan has seen its main product plummet in value from a nominal record of US$4.08/lb cash on the London Metal Exchange July 3 to US$2.21/lb cash on October 14. Diminishing silver prices have also prompted Vancouver-based
Chile -Chile’s Escondida, the world’s largest copper mine, has declared force majeure on sales contracts for nine months due to the technical failure of the SAG mill at its Laguna Seca plant. The SAG mill stoppage will likely cause a 15% drop in concentrate production that will translate into a 10% drop in annual refined copper output. Escondida, in northern region II, produced 725,177t of copper in this year’s first half. BHP Billiton owns 57.5% of the mine, leaving 30% in the hands of Rio Tinto (LSE: RIO), 10% with Japan’s JECO corporation and 2.5% with the World Bank’s International Finance Corporation. - In light of plummeting copper prices that raise the question of how low they can fall before triggering mine shutdowns and massive project cancellations, Alfredo Ovalle, the president of Chile’s private miners association Sonami, said the metal can fall to US$1.80/lb and still remain attractive. - Vancouverite Coro Mining said it will not exercise its option to acquire the Cerro Negro copper mine in region V due to unfavorable market conditions.
Although credit is apparently out of reach for juniors with no production in sight, a precious few that are eyeing output have been able to obtain funding, either through equity or debt. Endeavour Silver, which has two mines in Mexico, to slow production growth in the fourth quarter. In Brazil, mining giant Vale is also concerned with ore prices. In the last month or so, Vale has been threatened by a Chinese steelmaker boycott because the company wants to increase iron ore prices 65%. Meanwhile, multinational bank UBS published a report forecasting contract iron ore prices will drop 15% in 2009, which would represent the first decline in seven years.
Peru - Chinese aluminum and copper producer Chinalco said it is not backing off from US$2.2bn in investments for 2008-11 at its Toromocho copper project despite lower red metal prices. - Precious metals miner Buenaventura approved the issue of US$350mn in unsecured notes but said it plans to wait for better market conditions before emitting them.
Also in Mining: Argentina - Australia-based Intrepid Mines said construction at the Casposo gold-silver project in San Juan province will be postponed due
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Regional - Anglo-Australian miner Rio Tinto is looking to take advantage of the recent market turmoil and the deepening credit squeeze to acquire projects from distressed juniors, according to mining analyst John Meyer with investment bank Fairfax.
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Oil & Gas
Exploration: Peru prepares new licensing round for 2009
enough gas in block 56 to ensure exports. The Camisea consortium earlier this week started commercial production from block 56, which will churn out 300Mf3/d (8.5Mm3/ d) in its first phase.
The INGEPET oil and gas conference in Lima in mid October was full of talk about the country’s ongoing “petrogate” scandal, in which mines and energy ministry officials were allegedly bribed by the Petroperú-Discover Petroleum International consortium to win five blocks in this year’s bidding round. While the country’s congress and comptroller are investigating the alleged irregularities and Norway-based Discover denies any wrongdoing, Peruvian officials stressed that existing oil and gas contracts in the country would not be changed. Government officials and some in the local media had expressed concern that the scandal could worry investors about the status of their existing contracts. Daniel Saba, the chairman of oil and gas promotion agency Perupetro, assured investors and said that existing contracts were “untouchable.”
Also this week in Oil & Gas: Bolivia - Civil engineering works for the US$90mn Río Grande natural gas liquids separation plant were started. In July, state-owned YPFB awarded Argentine-Bolivian group Catler Uniservice a turnkey contract to build the plant which is due to be ready in a year. Brazil - Federal energy company Petrobras discovered new signs of oil in the Campos, Santos, Espírito Santo and Sergipe-Alagoas basins. - Container terminal operator and port logistics company Wilson Sons received a US$896mn loan from the country’s merchant navy fund to finance the construction of new oil tankers. - Petrobras awarded Norwegian group DOF and its subsidiary DOF Subsea a US$81.6mn, three-year charter deal for a ROV support vessel. - Petrobras still plans to publish this year its revised strategic plan despite the global financial crisis that has been pummeling international markets. Petrobras’ board was due to meet on October 17 to evaluate its 2009-13 investment plan.
Daniel Saba, the chairman of oil and gas promotion agency Perupetro, assured investors and said that existing contracts were “untouchable.” President Alan García reshuffled his cabinet in light of the affair, replacing mines and energy minister Juan Valdivia with Pedro Sánchez Gamarra. Peru’s government, meanwhile, is preparing a new licensing round for 2009, Saba also announced at the conference. The blocks, which have yet to be finalized, will include both areas for oil and natural gas prospection. An announcement with more details on the round is expected in the coming months. But foreign investors may not be getting everything they want, as government officials decided to keep one of its most prospective blocks for domestic use only. US company Hunt Oil, a member of the Camisea upstream consortium that produces gas for export, previously opposed the government’s idea to set aside block 88 for domestic use. But now Pluspetrol, another member of the Camisea group, believes there is
Colombia - Nearly US$140mn will be spent over the next two years to develop the first ethanol plant to be built by Colombia’s state oil firm Ecopetrol. The plant, to be located in Meta department, will have daily capacity of 330,000l and produce ethanol from sugarcane. Mexico - US offshore services company Global Industries was awarded a US$46mn project for pipeline work by Mexico’s state oil company Pemex. The work will be focused on Pemex’s Ku-Maloob-Zaap project in the Campeche bay. - US financial services firm ICP Capital structured and arranged a US$121mn financing package for the acquisition of two ships for Mexican offshore services firm Blue Marine Shipping. The vessels will be leased to Pemex’s refining subsidiary Pemex Refinación.
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Electric Power
New Energy and Mines minister in Peru
project entails a 1m3/s desalination plant and a 500MW gas-fired plant. The winner will have 80 days to complete the evaluation.
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World financial markets are not the only ones in disarray as evidenced by Peru’s Petrogate scandal involving alleged irregularities in the awarding of oil contracts. This episode led to the resignation of the energy and mines minister and eventually the entire cabinet. After the cabinet shakeup, Pedro Sánchez Gamarra was appointed to the ministry’s top post, which had been headed by Juan Valdivia. Sánchez’s appointment has been applauded due to his power sector experience, which comes at a time the country faces a tight supply-demand scenario. The new minister is an expert in energy regulation and investment promotion and holds a master’s from George Washington University and an MBA from Peruvian business school Esan. He was executive director of Peru’s former private investment agency Copri - now ProInversión - and served as board president of several power utilities.
Brazil - Power company MPX Energia signed a preliminary EPC contract with Italian power plant developer Maire Tecnimont to build the third line of the 360MW second phase of the Porto do Pecém thermo plant. The signing of the 245mn-euro (US$335mn) definitive agreement with Maire Engineering do Brasil is expected by month-end. - Power regulator Aneel authorized two companies to start developing two thermo plants totaling 32.6MW installed capacity. Aneel will allow sugar and ethanol producers Usina de Açúcar Santa Terezinha and Usina Frutal Açúcar e Álcool to install a 16.5MW thermo plant in Paraná state and a 16.1MW thermo plant in Minas Gerais state, respectively. Chile - Environmental regulator Conama approved the EIS for the US$200mn Ñuble hydro plant being developed by local power company CGE in region VIII. The 136MW run-of-the-river plant will be connected to the central SIC grid and generate roughly 700GWh/y. - The Norgener subsidiary of Chilean generator AES Gener submitted an EIA for the 153km Angamos-Encuentro high-voltage transmission line planned for northern region II. The line will run from a branch of the Angamos-Atacama line under development in port town Mejillones to the Encuentro substation in María Elena municipality.
The appointment of Sánchez Gamarra as minister of energy and mines has been applauded due to his experience, which comes at a time the country faces a tight supply-demand scenario The country will produce an estimated 33.5TWh this year to meet rising demand from increased mining activity and the country’s continued economic expansion, economists at consultancy Maximixe told BNamericas. The Maximixe forecast would mark a roughly 10% increase in production over 2007. To meet increasing demand, the ministry has awarded dozens of temporary concessions to carry out studies on new generation projects as well as authorizations to move forward with more advanced projects. Case in point, the ministry authorized Fénix Power Peru to develop a 597MW combined cycle thermo plant in Chilca, south of Lima. The company has 36 months to carry out works. And staying in Peru, consortium Cesel-Cial was the only group to qualify to carry out a technical and economic evaluation of a private desalination initiative and thermo generation project. The
Venezuela - Government officials laid the first stone at the 330MW Termocentro thermo plant in Valles del Tuy, Miranda state. The plant is due to start operations in June 2009 and will supply the capital region. Plant capacity will grow by another 920MW in 2010. The energy and oil ministry expects the plant to reach 2.15GW, supplying 5mn residents for total investment of US$2.3bn. - The ministry also announced that an industrial park under construction at the Santa Inés oil refinery in Barinas state will include a 100MW plant.
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Water & Waste
Global warming hits South America water reserves
solve their financial difficulties without disregarding this issue. For some companies, riding out the financial crisis is about survival. However, surviving another day makes no sense when the date for an execution has been set.
On October 13, a spokesperson for electricity firm Duke Energy, Tom Williams, was quoted as saying in the Uruguayan press that the world economic crisis is likely to take its toll on global warming, as reducing greenhouse gases is no longer the first priority for a number of companies. Reducing greenhouse gases “has clearly fallen to second priority due to the economic scenario we face,” Williams said. Duke Energy is part of US-based association Climate Action Partnership, which comprises firms and non-profit organizations that have supported the passing of a bill in the US congress to reduce greenhouse gas emissions. Williams added that, according to studies, South America’s water reserves are the world’s resources most affected by global
Also in Water & Waste: Chile - In order to evaluate their overall impact, large-scale agricultural projects should form part of the national EIS system, Chilean water authority DGA general director Rodrigo Weisner said, adding that irrigation uses by far the highest percentage of water in the country. - The sale of water company Aguas Nuevas, owned by the Solari group, has been put on hold. The operation has not been cancelled but all parties have agreed to put the operation on standby until the real impact of the financial crisis can be determined. Bolivia - Water minister René Orellana said that, to date, there are no companies interested in building the 120m-high dam in the Misicuni multipurpose hydro project. The tender process is still open and the Misicuni firm has US$30mn to carry the project, matched by the same amount from the national treasury and loan commitments from the Andean Development Corporation (CAF) and the Italian government.
South America, which holds most of the world’s potable water reserves, has seen rivers reduce their flow and glaciers retract due to rising temperatures. warming. The continent, which holds most of the world’s potable water reserves, has seen rivers reduce their flow and glaciers retract due to rising temperatures. While regional governments and associations are working together to monitor natural resources and are implementing a number of policies designed to reduce emissions and combat global warming, it is imperative that companies play their part and separate what is important today from what will be urgent tomorrow. When something is important, it can be moved up or down the priority ladder. Eventually, it will be dealt with after careful consideration. However, the thing about urgency is that it leaves no maneuvering room. Issues must be dealt with immediately, or the results will be disastrous. Global warming is an urgent issue. It is upon us now. There is no more wiggle room left. Therefore, companies across the region must look at things from a broader perspective and find a way to
Mexico - National water authority Conagua is planning to invest US$2.87bn through 2012 to improve hydro-agricultural infrastructure. Perú - ProInversión, the state agency for the promotion of private investment, does not think the international crisis will affect investor interest in the country’s concessions. However, in some cases, firms requested the extension of deadlines to present proposals. This was the case in the Huascacocha-Rímac water transfer system and the electric train project, both in Lima. - National sanitation authority Sunass will implement a trust fund for companies to guarantee low interest financing for industrial wastewater treatment initiatives. The entity will also officially launch differentiated water rates for firms that invest in wastewater treatment in November.
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Infrastructure
New infrastructure fund in Colombia
Also in Infrastructure: Ecuador - State entities are looking for a legal way to terminate contracts with Brazilian engineering firm Odebrecht following a decree signed by President Rafael Correa on October 9. Four of Odebrecht’s five contracts in Ecuador total US$713mn. The projects that have been passed onto state hands are the Tena airport, the Toachi-Pilatón and Baba hydroelectric projects, and the Carrizal-Chone irrigation initiative. - The public works and transport ministry will invest about US$69.3mn in the rehabilitation of a highway in Morona Santiago province. The 151km highway connects districts Méndez and San José de Morona.
The announcement by Colombia’s finance ministry that it had signed a memorandum of understanding to create a US$500mn infrastructure fund with local pension fund managers (AFPs) and insurance companies, as well as a number of multilateral entities, is the culmination of hard work. It also comes at a critical time for the country’s development plan which needs to succeed regardless of the global financial crisis. Since 2006, the country’s planning department and finance ministries have been working with AFPs and the IFC to create a framework for the AFPs to invest in infrastructure. In August this year, finance minister Óscar Zuluaga confirmed the plan but declined to comment on a startup date. Then, in September, Andean Development Corporation (CAF) infrastructure VP Antonio Juan Sosa said the entity was part of a committee to advance the creation of a vehicle of this nature.
Brazil - President Luiz Inácio Lula da Silva announced that infrastructure projects would not be halted due to instability in international markets. He said that activities for the country’s growth acceleration plan PAC would continue as planned, adding that he is certain that investments by big companies will not be affected.
While the government can participate in the fund, the idea is to have a corporate administration and the autonomy to decide where and how to invest.
Panama - Panama Canal Authority (ACP) CEO Alberto Alemán does not expect the global credit crisis to have any impact on the cost of financing for the US$5.25bn expansion project. - Meanwhile, President Martín Torrijos officially announced the final financing structure for ACP’s expansion project. The funding strategy aims to raise US$2.3bn from five major multilateral agencies.
IDB, CAF and possibly the IFC will take part in the up to 12-year fund, with Colombian export development bank Bancoldex also acting as a local partner. While the government can participate in the fund, the idea is to have a corporate administration and the autonomy to decide where and how to invest. The principal objective of the fund is not to contribute to the development of infrastructure but to generate profits for its associates, according to CAF. However, a fund of this nature will naturally help to strengthen the local economy because it will get financing for projects at a lower interest rate. So, the country can remain assured that there are resources for infrastructure development, in spite of the global financial crisis.
Mexico - The country’s biggest construction firm, ICA, does not expect its results for Q3 to experience any negative effects from recent fluctuations in the interest rate and foreign exchange markets caused by the global financial crisis. - However, the crisis has prompted the transport and communications ministry (SCT) to postpone tender calls for highway projects scheduled for late 2008. The decision affects the second and fourth packages contemplated in federal highway reconcessions program Farac.
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Telecom
Mexico pushes back auctions for 3G and WiMax
(US$4.5mn) in the red for Q3, versus a 41.2mn-real net profit in the same period in 2007. But the loss was mostly attributed to exchange rate losses in the period, related to outstanding dollar-based debt. The company is actually pretty much unfazed by the current worldwide financial situation, as it feels that telecommunications are basic services and a must-have for clients.
As markets in developed countries go to hell in a handbasket not considering the artificial bounce seen in reaction to billions of euros injected into the European market this week - it seems those developing countries located closest to the kitchen are starting to get burned. Mexico’s telecoms regulator Cofetel decided to push back auctions for WiMax and 3G spectrum licenses to next year due to the difficult global economic situation. “It is better to hold them back until the first quarter of 2009 in order to avoid spectrum being awarded but lying unused due to concessionaires lacking the liquidity to deploy the infrastructure,” Cofetel board member José Luis Peralta said. Another major issue is the risk of reaping less than the US$1bn they had expected to get from license payments. On the other hand, the largest country in the region, and one of
Also in Telecom: Regional - Possibly taking advantage of the current situation and dried up funds in the north, Montevideo-based Latin American wireless application services provider GlobalNet actually financed the US mobile application development company MobUI Corporation’s purchase of mobile application platform company Action Engine Corporation. GlobalNet will have an ownership stake in MobUI, allowing it to increase its technological offer while working with MobUI, which will create iPhone, mobile Web, and downloadable applications for major consumer brands. Neither the purchase price nor the amount of funding was reported.
One major issue behinds Mexico’s Cofetel decision is the risk of reaping less than the US$1bn they had expected to get from license payments.
Chile - Spain’s Telefónica came back to the negotiating table - despite expressing vehemently before that it would never sweeten an offer - and (surprise, surprise!) increased its offer by 10% for the acquisition of shares of incumbent Telefónica Chile. This is now to be voted on by minority shareholders. If the bid is accepted, Telefónica would pay a total of roughly 691mn euros (US$943mn) for the shares. - The supreme court heard the opening arguments in relation to a dispute over whether existing mobile operators should be allowed to participate in upcoming auctions for 3G licenses. Of the 90MHz available, telecoms regulator Subtel had hoped to reserve some 60MHz for a new operator that would focus mainly on providing value added services, while allowing the three existing operators Entel PCS, Movistar and Claro to compete for 10MHz each.
the farthest away from the northern hemisphere, Brazil, seems to be attracting attention. For example the Brazilian unit of US wireless and network equipment provider Netgear is expected to represent a whopping 50% of the company’s Latin American operations in 2009. At the same time, for the near future the company will continue business as usual and maintain direct operations in four countries - Argentina, Brazil, Chile and Mexico - instead of expanding in the rest of the region. Also looking to get a piece of the action, converged communications provider ATS partnered with Canadian mobile solutions provider Dialogic to launch video telephony solutions for 3G networks in the Brazilian market. They will focus on video surveillance and video marketing - the latter of which is a very good way of generating revenue from content distribution in video. One event this week that seemed to contradict this trend was Brazilian telephony and internet provider GVT’s falling 9.5mn reais
Colombia - President Alvaro Uribe ratified a law allowing the introduction of number portability, and the communications ministry has until the end of 2009 to carry out the necessary technical and economic impact studies. The total investment needed by operators to have the system up and running is expected to be US$50mn.
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IT
Security solutions market to grow 40% annually
infrastructure and wireless software provider Sybase. Latin American enterprises across all vertical markets are turning to mobility as a means to stay competitive, as mobility can both help companies operate more efficiently and improve customer satisfaction. - US IT services provider CSC expects revenues from Latin America to reach US$500mn-600mn in the next 2-3 years. The company recently established direct presence in Latin America by setting up regional headquarters in Chile. - South African ICT company Datatec posted global revenues of US$2.3bn in the first half of the year, up 18% compared to the same period last year. Latin American operations accounted for 9% of Datatec’s global revenues during the period.
This week’s sector headlines had news of major players in the Latin American IT security market flashing their armor. Regional security providers disclosed bullet-proof growth expectations, while several multinationals released rebuffed solutions aimed at keeping crucial client information firmly under lock and key. For example, Latin American network security solutions provider Etek said it expected the regional managed security solutions market to grow 40% annually to US$300mn in 2011, compared to US$100mn in 2008. The company believes the needs of information security are changing due to an increasing trend toward identity and access management, security, incident and event management, and information leak prevention. Meanwhile, Russian antivirus software developer Kaspersky Laboratories disclosed plans to expand in Chile next year due to
Argentina - IDC said it expects data centers to drive domestic external disk storage sales next year. Telecommunications companies specifically are turning to data centers to satisfy their storage space needs and those sales will compensate for a slowdown from other vertical markets, such as the financial sector. - IT solutions and outsourcing services provider Globant is looking to purchase companies to grow its value-added services. Globant, which delivers offshore IT outsourcing services with a broad portfolio of solutions including internet marketing and software development, is eyeing companies in both the US and Latin America, with special attention being given to Argentina, Colombia, Uruguay, Costa Rica, and the US.
The needs of information security are changing due to an increasing trend toward identity and access management, security, incident and event management, and information leak prevention. the country’s high rate of IT penetration. The company is looking to protect security gaps created by more advanced technology use. While Kaspersky is considering opening offices in Chile and in other parts of Latin America, the company is focusing on consolidating its presence through the strengthening of its channel partner training programs. Finally, US web filtering and desktop security software manufacturer Websense launched the Websense Web Security Gateway, aimed to protect a company’s employees and the data they manage when surfing the web. Besides protecting against malware, Data Security helps companies to stop data leakage.
Brazil - Latin American IT consultancy NetLogistiK disclosed plans to open an office in Brazil next year. Brazil represents an attractive market for the company due to the size of its economy. NetLogistiK would have rolled out operations earlier in the Latin American giant, but company plans were slowed by the language barrier. Chile -Chilean BI specialist Inys expects sales this year to reach US$4mn-4.5mn, compared to US$3.5mn in 2007. Inys is going through a three stage restructuring process. The first phase aims to reach US$6mn in revenues in 2009. The second phase is focused on regional expansion and is set to end in 2012. The third stage is consolidation, ending in 2015, when the company expects sales of US$20mn.
Also in IT: Regional - Mobility is becoming a top driver for IT development in Latin America, according to Irfan Khan, VP and CTO of US enterprise
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Banking
The first waves of the crisis hit Latin America
business. Lehman had local operations focused on securities trading and investment banking activities and had applied for a full investment banking license in July 2007. BTG however plans to discontinue the investment banking side of the group as well as the licensing process.
Latin America’s financial systems are increasingly impacted by the international financial crisis, especially in terms of liquidity, and multilateral lenders and local authorities are reacting quickly to make sure that impact is as limited as possible. The good news for the region so far is that governments have not been forced to rescue private sector banks from going bust like in the US and Europe. A host of multilaterals - with the World Bank’s IFC arm taking the lead - came out during mid October to promise several billion dollars worth of financial support for the region. IFC said it will make US$2bn available for its Latin American customers and SMEs to cope with the ongoing financial crisis. Up to US$500mn will go to microfinance and loans to Latin American SMEs through regional banks and microfinance institutions.
Also in Banking:
A host of multilaterals - with the World Bank’s IFC arm taking the lead - came out during mid October to promise several billion dollars worth of financial support for the region. The IFC funds will also support local financial institutions through its global trade finance program - providing short-term financing or equity to corporate customers - and key areas through specific funding packages. IFC also said it could mobilize another US$2bn in additional funds in collaboration with other multilaterals. IDB for its part pledged US$20mn to help Latin America’s microfinance industry face today’s tougher times, which threatens the industry with problems of liquidity, foreign exchange fluctuations and high inflation eroding borrowers’ purchasing power. Despite today’s difficulties in obtaining international funding, Chile’s fourth largest bank Bci managed to secure a five-year, US$150mn bullet structured credit with Banca Nazionale del Lavoro (BNL), a unit of BNP Paribas, to finance foreign trade operations. On the other hand, Banking and Trading Group (BTG) picked up the Brazilian operations of Lehman Brothers for an undisclosed sum with plans to continue growing its own asset management
Brazil - Some of the country’s largest banks, Banco do Brasil, Itaú, Unibanco and Bradesco, continued the trend of buying loan books from smaller banks, mostly payroll loans. Those purchases are part of a central bank-sponsored policy of freeing up funds for larger banks to buy loan books from smaller ones and as a result provide the latter with crucial liquidity. - Savings deposits in Brazil totaled US$113bn at end-September, up 18.1% from the same time last year. - Brazilian midsize bank Indusval will receive US$47mn and 7mn euros (US$9.5mn) in A/B loans from IFC, which will directly finance US$15mn of the total for three years under the A-part of the loan. The B-part will make up the rest of the total and be on a two-year timeframe. The loan was coordinated by IFC and the European operations of Brazil’s Banco Itaú with seven additional banks. - After announcing a US$1bn loan from IDB in early October, Brazilian national development bank BNDES said it was in negotiations to receive 3bn reais in loans from multilateral and international financial institutions in 2009. BNDES also said it would not be seeking out more international loans this year. Central America - The Central American Bank for Economic Integration (Cabei) and interdealer broker ICAP formed a JV to overcome the credit limitations that have slowed the development of the financial markets in Central America. The new company - called BCIEICAP Capital Market - will be able to provide a dynamic voice and electronic brokerage platform for Central American financial products, both within the region and globally. Peru Peruvian bank BIF is seeking a medium-term loan of up to US$50mn from IFC to expand its operations beyond its traditional focus on the corporate segment. The funds would help the bank target the mortgage and SME segments.
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Insurance
Pssst... wanna buy an insurance company?
Also in Insurance:
The question of what the general strategy for New York-based insurer AIG will be in light of its rescue by the US government has been answered loud and clear: sell lots of assets, even profitable operations in Latin America. In mid October, the company came out with its anticipated list of what’s for sale, saying that everything that wasn’t US P&C, foreign general insurance or a continuing interest in foreign life was on the auction block. This clearly put reinsurer Transatlantic Re, which has operations in Brazil, up for sale. But what did “continuing interest” in foreign life mean? It turned out it meant AIA, the Asian life insurer in which AIG hopes to sell a minority stake, but that AIG would be looking to unload parts of its ALICO unit, which has operations in Argentina, Brazil,
The fact is this is a situation without precedent in Latin America: a major insurer just giving up a tremendous position in markets across the region. Chile, Colombia, Mexico, Panama, Peru, Uruguay and Venezuela through a mix of wholly owned subsidiaries and joint ventures. AIG has said it wants to sell its asset in an orderly way, valuing big strong firms as potential buyers, presumably to keep transaction costs down and asset values up. However, the pressure on AIG to liquidate assets looks to be growing fast. In addition to the two-year US$85bn loan provided in the original bailout deal last month, the Fed also agreed to lend US$37.8bn to some of AIG’s domestic life insurance subsidiaries. The fact the company had already drawn US$61bn on the Fed’s original credit facility as of September 30 surprised many investors. So how fast is fast for these deals and how high is high for asset values? The fact is this is a situation without precedent in Latin America: a major insurer just giving up a tremendous position in markets across the region. We’ll just have to wait like everyone else to find out how fast it will go and what it’s worth on the market in these turbulent times.
Regional - Fitch sees the country’s insurance industry, which used to suffer relatively high loss ratios, as standing out among Central American nations, with continued improving financial performance after foreign companies took a greater share of the market. Fitch finds the country’s improving loss ratio levels reflect the combination of increases in premiums, better claims management and the more active role of the police in controlling car theft. Mexico - Criteria CaixaCorp, an investment holding company controlled by Spain’s La Caixa, completed the acquisition of a 20% stake in Mexico’s Grupo Financiero Inbursa for US$1.97bn. The transaction was announced last May, when the deal was worth some 1.5bn euros (at the time US$2.4bn). Chile - The government has announced it will lift a capital gains tax applied on foreign insurers, endowments and sovereign wealth funds that operate in Chile. The decision was part of a series of measures announced by both the finance and economy ministries to the tune of US$850mn to keep credit markets flowing and ease access to financing for local exporters and SMEs. Brazil - Local reinsurance broker Especializada Re signed an agreement with US-based insurance broker and risk services firm Collins for consulting and correspondent broker services. - Insurance regulator Susep allowed federal reinsurance company IRB-Brasil Re to allow IRB to continue to perform risk retrocession for reinsurers outside Brazil until end-December. Previously, IRB’s special retrocession coverage authorization was scheduled to end October 17. There are currently only two other authorized local reinsurers, Munich Re and J Malucelli Re, with US-based ACE, Spain’s Mapfre and XL Re still awaiting final approval. - Brazilian federal government-controlled reinsurer and former monopolist IRB-Brasil Re increased profits to the equivalent of US$114mn in the first eight months this year, up 11.3% in reais from the same period last year.
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