Odebrecht and FCC win Panama Metro contract
Brazil’s civil engineering giant Construtora Norberto Odebrecht, in partnership with FCC Construcciones of Spain, was declared the winner of the bidding for the Línea 2 Panama City Metro contract, with a US$1.86bn proposal. The consortium led by the two companies defeated competition from PANAMetro (led by China Harbour Engineering) and UTE PANAMÁ II (led by Dragados of Spain and ICA of Mexico). The Línea 2 contract requires the winning consortium to build 22kms of passenger railway with 16 stations, linking Tocumen in the south of Panama City up to San Miguelito, where it will connect with Línea 1. Odebrecht/FCC also built Línea 1, stretching for 16kms, at a cost of US$2.1bn. It opened to the public in April 2014. The new contract for Línea 2 includes responsibility for design and construction, auxiliary services and stations, railway tracks and equipment and rolling stock. Although Odebrecht/FCC were declared the winners, at the end of May the contracting process was officially suspended to give the authorities time to consider a formal complaint by the PANAMetro group, which alleged that two members of the technical assessment committee (including Óscar Ramírez, rector of the Universidad Tecnológica de Panamá) previously worked as consultants for companies in the winning consortium.
LATAM Airlines reports unexpected Q1 loss
LATAM airlines, the largest Latin American commercial airline, formed by LAN of Chile and TAM of Brazil, reported an unexpected loss of US$39.9m in the first quarter of 2015.
The airline said that the loss, similar to the US$41.3m deficit registered in Q114, reflected a weak Brazilian Real, which had offset operational gains and cost reductions. The consensus among analysts, as reported by Reuters, had been that LATAM would achieve a Q115 profit of US$42m. In a press release, the company said that its non-operational results were affected by a non-cash US$205m loss suffered mainly by TAM as a result of a 20% depreciation of the Brazilian currency during the quarter.
Operating revenues were down 12.2% to US$2.791m in Q115, while costs dropped 16.3%. Costs per available seat kilometres (ASK) were down 17% year-on-year, which the company said was largely due to lower jet fuel prices. As a result of the cost reduction, operating profits doubled to US$227m. The operating profit margin rose to 8.1%, up from 3.5% in the comparable year-earlier period. LATAM expects to take delivery of 17 new aircraft between July and March 2016, including 11 Airbus A321s and 4 Boeing 787-9s.
OHL hit by corruption allegations
The Spanish toll-road operator OHL has been hit by allegations of corruption and impropriety in Mexico. The share price of its local subsidiary, OHL Mexico, dropped sharply in late May, after Mexico’s federal ministry of communications and transport said it would seek an audit of the company’s contracts with the Estado de México (Edomex). This followed earlier leaks of telephone conversations apparently showing that the company improperly increased toll charges for motorists using the Viaducto Bicentenario highway in Edomex. Executives were also alleged to have discussed bribing Mexican judges and paying for a five-day holiday for the Edomex communications secretary, Apolinar Mena. Mena, along with Pablo Wallentin, OHL Mexico’s head of institutional relations, resigned in the wake of the allegations.
OHL has denied any irregularities at its Mexican subsidiary, insisting that it operates within local law and honours the terms of its contracts. OHL Mexico generates around 30% of the parent company’s global income. Earlier, the Spanish group had announced an18.7% fall in Q115 net profits to EUR49.1m, attributed in part to lower toll revenues in Mexico, caused by the effect of lower inflation on pricing mechanisms.
Pacific Rubiales accepts Alfa/Harbour takeover bid
The board of Pacific Rubiales, the Canada and Colombia listed private oil company, on 21 May said that it had agreed to accept a takeover bid mounted by Mexico’s Alfa Group and Harbour Energy of the US. Under the terms of the offer, Alfa and Harbour Energy will pay C$6.50 (US$5.32) a share for 81.05% of the company, valuing it at US$6.4bn. Alfa already owns a minority stakeholding in Pacific Rubiales; under the terms of the deal Alfa and Harbour Energy will each end up holding a 50% stake in Pacific Rubiales.
The offer price represents a 35% premium on the Pacific Rubiales share price on 4 May, the day it was first revealed. Despite unanimous acceptance from the Pacific Rubiales board, which said “the transaction delivers significant and immediate value to company shareholders” a group of individual shareholders led by Caracas-based Alejandro Betancourt said it was “extremely disappointed” at the terms and would vote against the deal in July.
Pacific Rubiales produces around 150,000 barrels per day (bpd), mostly from Colombian oil fields. Its share price has dropped steadily since 2014, on the back of the fall in international oil prices, the expiry of some of the company’s key production licences in Colombia, and concern over its levels of debt. The licence to operate the Piri-Rubiales field ends in June 2016.
Looking beyond the short term however, Pacific Rubiales is attractive to Alfa and Harbour as a vehicle for developing in Latin America, including bidding for new licences in Mexico. The terms of the bid also includes a debt-restructuring proposal.
Itaú profits beat expectations
In early May the leading Brazilian bank Itaú Unibanco Holding reported net recurring first quarter profits of BRL5.808bn (US$1.88bn), ahead of market expectations. Net recurring profits is a measure that excludes once-off items and charges. The latest results were attributed to rising interest income and improved cost control. Measures to reduce risk also had an effect, with non-performing loans falling for the 11th consecutive quarter.
However, sector analysts noted that the poor performance of the wider Brazilian economy was having an impact on the bank’s accounts. Recurring profit margins dropped to 24.5% in Q115, down from 24.7% in Q414. According to a report by Economática, a local consultancy, profitability across Brazilian listed companies slumped in Q115. The consultancy said that net profits reported by 317 listed companies slumped by 41.4% to BRL25.762bn (US$8.557bn). Itaú Unibanco was the second largest company by net profits behind state-owned Banco do Brasil and ahead of (the also state-owned) energy company Petrobras. Economática said that Itaú, along with Banco do Brasil and Bradesco, was part of a group of banks that had reported improved profits despite the country’s growing macroeconomic difficulties. The consultancy said that taken as a group, the 25 banks listed on the Bovespa (the São Paulo stock exchange) had reported a 42.8% increase in Q115 profits to BRL17.8bn. This contrasted with mining companies at the other end of the spectrum: a group of five led by Vale had reported combined losses of BRL9.83bn (US$3.28bn) in Q115, compared to profits of BRL5.81bn (US$1.94bn) in the comparable year-earlier quarter.
Spotify tunes in to Latin America
Spotify, the music-streaming service, says it is focusing marketing efforts on Latin America. According to Gustavo Diament, its director for the region, the company is operating in 17 countries and hopes to grow revenues from the area to 15% of its global total. Spotify launched in Mexico only two years ago, but that country now is the fifth largest market by revenue out 58 worldwide.
“Mexico is getting close to overtaking Germany in revenue terms” Diament said. According to Spotify, by the end of last year it had 15m paying subscribers and around 60m active users around the world. Diament said that the key to boosting revenues in Latin America was the ability of consumers to pay for the service via their mobile phones. Monthly subscription rates vary from COP11,499 (US$4.81) in Colombia to PEN16.90 (US$5.37) in Peru. These rates have been pitched below the US$9.99 charged in the US to premium subscribers, who get an ad-free music stream.
The company is trying to reach more deals whereby the Spotify service is “bundled” into a single subscription rate charged by the mobile phone operators for a range of services, rather than being sold as a stand-alone service that subscribers have to opt in to and pay for separately.
It also needs to work with artists who believe they are not getting adequate royalties (among them is the US singer Taylor Swift, who has withdrawn her catalogue from Spotify). Diament claims that Spotify has paid over US$2bn in royalties, but notes that this goes to music labels and rights owners, with Spotify having no direct control over what proportion goes to the artists themselves.
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