Colombia beckons as investment opportunity - Citi
NEW YORK |
NEW YORK May 25 (Reuters) - Colombia needs $45 billion invested in infrastructure in the next five years to sustain the country's economic growth, Bernardo Norena, chief executive of Citi Colombia said this week in New York.
Top officials from the country's government and major state-owned and private companies were in New York and London promoting investment in Colombia's markets that have been deemed expensive or difficult to get into.
Even with an investment-grade rating and a record of $15 billion poured into the country last year, Colombia still needs to revamp and build much needed infrastructure such as airports, roads all across the country and coastal ports, according to Norena, whose company sponsored the investment promotion gatherings.
The Andean country's economy is expected to grow between 4.5 and 5.5 percent this year but its markets have a long way to go and are in need of global capital to fuel the economy further.
Colombia's free trade agreement with the United States came into effect earlier this month and is in talks with South Korea and Japan. The country has trade agreements with Canada and with most of Latin American countries, and is in negotiations with the European Union.
Still some foreign investors view company valuations at a premium to other markets and thus might shy away from its markets.
But Juan Pablo Cordoba, chief executive of the Colombian stock market, said that cost of capital has seen a reduction of 500 basis points in the past five years while the government has improved its ease of doing business and investor protection laws.
"Discount rates have gone down dramatically. The alternative for investors is very limited and that is justifying higher valuations," said Cordoba, who like other executives at the event, spoke to journalists in New York on Tuesday.
With developed economies in financial straits, the time could be ripe for international and regional firms to expand within Latin America.
"The European crisis has been an advantage for many Latin American companies because many investments made by European companies in the region will need to divest, especially those companies based in Spain, Portugal and Italy," said Jose Alberto Velez, chief executive of Grupo Argos, Colombia's No. 1 cement maker. "There are enormous opportunities for our companies to acquire those investments."
Spain's Banco Santander sold assets to Chilean Corpbanca last year, HSBC sold Central American assets to Colombia's third largest bank Davivienda while Spain's No. 2 bank BBVA may sell its Latin American pension fund businesses in the region.
"Flight to quality is being reversed," Gerardo Grajales, chief financial officer of Colombia-based and regional airliner Avianca-Taca.
Still only 19 percent of shareholders of Colombia's stock exchange are foreign investors, for Grupo Argos, the largest cement producer in the country, that number shrinks to only 2.4 percent and for electrical company Empresa de Energia de Bogota (EEB) foreign investors make only 1 percent. Avianca-Taca is 90 percent foreign-owned.
So far this year Colombia's stock exchange has seen three initial public offerings and is expected to have up to five more, but that is not enough for Cordoba, its chief executive.
Last year the exchange held a record of nine public offerings attracting $7 billion, the second largest amount in Latin America that year, he said.
"Our market is doing very well but the number of companies listed on the exchange is a challenge and we are working in bringing more companies," Cordoba said. "Our goal is to make Colombia part of every portfolio investment globally."
Colombia's exchange, Bolsa de Valores de Colombia, integrated last year with Peru's and Chile's to to form MILA, which allows cross-border electronic trading in the companies listed in the three exchanges.
MILA already has more than 546 listed companies with combined market capitalization of $599 billion, the second-largest after Brazil in the region and traded volumes last year of $100 billion.
Companies like Grupo Argos, EEB and Avianca-Taca are Colombian-based firms with growing ties between regional countries thanks to political and economic stability as well as increased security.
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