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Latin American Economy & Business - July 2015 (ISSN 1741-7430)

Corporate Radar

Sierra Oil Wins Round 1 Licences: Mexico’s Sierra Oil and Gas led the only consortium to win licences in the first phase of the country’s Round 1 hydrocarbons licensing auction, announced on 15 July. Sierra, in partnership with Talos Energy of the US and Premier Oil of the UK, was declared the winner of the shallow water Blocks 2 and 7 in the Gulf of Mexico. Under the bidding rules, companies were required to offer a share of profits to the government and a minimum level of investment in developing the blocks. Mexico’s regulator, Comisión Nacional de Hidrocarburos (CNH), said that the consortium had offered the government 74%-86% of the profits from Block 2 (off the coast of Veracruz) and 83%-88% of the profits on Block 7 (facing the coast of Tabasco). The CNH estimated that investment in each block would be around US$1.3bn over the next five years. Each licence has a 30-year term. Contracts will be signed in August.

 

Falabella subsidiary boosts Colombia investment: Department store Sodimac Colombia, in which Chile’s Falabella has a 49% holding, says it is boosting its 2015 investment by 46.7% to US$81.8m. The chain, which is 51% controlled by Colombia’s Corona, said the money would be spent on opening new stores, refurbishing existing outlets and offering new online services. General Manager Miguel Pardo said the company had opened a new Homecentre-branded store early this year, and planned at least one more. First quarter sales in Colombia had grown by 10.7% year-on-year. Sodimac also operates retail chains in Peru, Argentina, Brazil and Uruguay.

 

Grupo Alfa fails in takeover bid for Pacific Rubiales: In early July Alfa SAB of Mexico and Habour Energy of the US dropped their US$1.7bn takeover bid for Pacific Rubiales, the Colombia and Canada-listed oil company. The bid was seen as a key move to develop a multinational Latin American oil company but faced resistance from a Venezuelan-based group of minority shareholders, who with a 20% stake in the company were able to reject the combined offer of 6.50 Canadian dollars a share as insufficient. The O’Hara group that blocked the takeover is also known as ‘Bolichicos’ because of its claimed proximity to the Venezuelan government. According to press reports, the Bolichicos managed to postpone a special shareholders’ meeting to consider the Alfa-Harbour offer to 28 July. In advance of the meeting, Alfa-Harbour improved the offer to C$7.00, but this was insufficient to meet the Bolichicos’ demand for C$9.0. Analysts said that Pacific Rubiales, which has been impacted by low oil prices and the ending of its licence to operate a key production field in Colombia, will now have to reconsider its strategy. As far as Alfa is concerned, Andrés Bezamilla, an analyst at Mexican brokers Valmex, said, “There are two scenarios. In the first, the company will look for other partners to bid in Mexico’s licensing rounds. In the second, it will give Pacific some time to think it over and then come back with a new offer. The positive thing is that it hasn’t allowed itself to be pushed by O’Hara into increasing the offer price.”

 

Profits down for the top 500: According to Chile-based AmericaEconomía Intelligence, profits at Latin America’s top 500 private sector companies dropped for the second year running in 2014, falling by 41% to US$2.48bn. There hadn’t been a two-year consecutive fall in earnings since 2001-2002. The fall was attributed to a number of factors, including the end of the commodities boom, the depreciation of local currencies against the US dollar and the fact that many of the companies are based in economies that experienced slow growth. Of the top 500, 203 companies are based in Brazil, 119 in Mexico, 65 in Chile, 44 in Argentina, 30 in Peru and 24 in Colombia. Brazil and Argentina – together home to about half the Latin American total – experienced economic stagnation last year. Andrés Almeida, head of the team that wrote the report, noted, “This is a new and less prosperous era. The commodities super-cycle is over. Profits and sales growth experienced from the 1990s to now cannot be maintained. Then, there was explosive growth in the commodities sector. Now prices have fallen and are stabilising.”

 

Carrefour does well in Brazil: Despite the slowdown in the Brazilian economy, sales by the French retailer Carrefour rose by 7.1% year-on-year in the second quarter, company executives said. Carrefour was doing better in the Brazilian recession than its also French-owned rival Casino, because a greater proportion of its sales were food or food-related, and spending on food items tends to be inelastic in a downturn, officials commented. Globally, Carrefour said that sales growth had slowed because of competition in France and a fall in consumer spending in China. Second quarter sales were EUR21.4bn (US$23.2bn). Excluding energy and forex fluctuations, sales grew by 2.6% in the period, down from 3.2% in the first quarter. Sales in Spain and Brazil were the bright spots. Brazil is the company’s second largest market after the home market in France. Carrefour’s Financial Director Pierre-Jaen Sivignon said that a global EBIT of EUR2.51bn-EUR2.53bn seemed a “reasonable” forecast for this year. Carrefour was considering listing its Brazilian subsidiary, but short-term capital market conditions in Brazil were not appropriate for an IPO. In any case, he noted, “we don’t need an IPO to support our growth in Brazil”.

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