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Latin American Economy & Business - January 2016 (ISSN 1741-7430)

Corporate Radar

Eurnekian bets on IPOs: Argentine businessman Eduardo Eurnekian is reported to be planning up to four IPOs on the New York Stock Exchange (NYSE) this year, arguing that conditions could be “ideal” for such a move if Argentina successfully resolves its long legal dispute with the hold-out creditors. Reuters said that Eurnekian, one of the country’s most successful businessmen, was thinking of floating shares in his airports operating company, in his energy unit Compañía General de Combustibles (CGC), in his nanotechnology group (which trades as Unitec Blue in Argentina and as Unitec in Brazil), and in his agricultural company as well. He said launching the IPOs would be a complex process, but he hoped it could develop in tandem with Argentina’s gradual re-insertion into global capital markets. He would use proceeds from the IPOs to fund expansion of his holding group, Corporación América, into other South American markets such as Brazil, Ecuador, and Peru. Corporación América, which has overseas interests as far away as Italy, Morocco, and Armenia, has an estimated annual revenue of US$2bn. Eurnekian said he was optimistic about the long term outlook for gas – through GGC he has an interest in gas fields in Patagonia.

Foreign companies betting on Brazil: When things get really bad, then it’s time to buy. That may – or may not – be a thought going through the minds of Brazil-focused corporate investors. What is clear, according to two separate studies, is that last year foreign companies were more active in Brazilian mergers and acquisitions (M&A) than the Brazilians themselves. According to KPMG, in 2015 there were 773 M&A transactions. Of the total, more than half – 396 – involved purchases by foreign companies. According to KPMG partner Luis Motta: “The current state of the economy and the depreciation of the real may have been accelerating the arrival and expansion of foreign companies in Brazil, despite worsening growth expectations and rising country risk”. According to a separate report by PwC, foreign investors accounted for 51% of a total of 672 acquisitions and capital increases that it analysed last year, up from 38% in 2014. PwC expects the proportion to rise a little further to 55% this year. PwC Brasil partner Rogerio Gollo said “Foreigners are going to remain interested in Brazil while domestic companies will continue to have financing difficulties”. One of the biggest transactions last year was the US$3.37bn purchase of the Jupiá and Ilha Solteira hydroelectric generators by Three Gorges Corp of China. New York-based Coty Inc also agreed to pay US$1bn for the beauty-care unit of Hypermarcas of São Paulo. Gollo said the sectors likely to attract most interest in 2016 are information technology, trade, agribusiness, and renewable energies.

Ford plans new plant in San Luis Potosí: According to press reports – yet to be formally confirmed – Ford Motor Co will in the first quarter of this year announce a major new investment in an assembly plant in the state of San Luis Potosí in Mexico. It is believed the plant will be used to launch a new model in the car company’s range. It is thought to involve investment of US$1.5bn and would produce some 350,000 units per annum. Earlier, in April 2015, the company said it was investing US$2.5bn to expand its engine and transmission manufacturing in central and north Mexico. The Mexican automobile industry continues on a strong growth trajectory. Last year Mexico produced an all-time record of 3.4m vehicles, up 5.6% on 2014. Exports rose by 4.4% to 2.76m vehicles. This consolidated its position as Latin America’s leading carmaker, ahead of Brazil (where production slumped by 21.6% to 2.33m vehicles). Globally Mexico is the seventh largest car producer; some estimate that this year it could overtake India and move up to sixth position. North of the border, a new agreement with one of the main US auto industry trade unions, the United Auto Workers (UAW), may also be positive for Mexico. Under its terms companies such as General Motors, Ford, and Fiat Chrysler have offered improved pay and health care to their US workforce in return for the right to boost output of some cheaper, lower-margin passenger cars in Mexico. Average wage costs in the Mexican industry are around $5 an hour compared to $29 in the US. The agreement may therefore lead to further relocation of plants from the US to Mexico.

Trouble with the Isagen sale: The Colombian government’s long-running plans to divest a majority stake in power generator Isagen have finally concluded with a sale – but a legal challenge is on the way. In January the government sold 57.6% of the company’s shares to Canadian investment fund Brookfield Asset Management for COP6.49trn – around US$2bn. Formally this was a sale by auction, but Brookfield was the only bidder after Chile’s Colbún, the only other company left in the race, decided to drop out after the government raised the minimum share price. Brookfield’s bid came in at the minimum and was accepted. The government says it has met all legal requirements for a successful privatisation. Medellín-based Isagen operates six hydroelectric and one thermal power station, with an installed capacity of 3,032MW. It generates about 16% of total electricity supply in Colombia. It is regarded as well-run and profitable. But an unusual alliance of left and right wing opposition members of Congress is mounting a legal challenge on the grounds that the sale was not competitive. On the right, former President Álvaro Uribe, using a calculation based on the cost of acquiring new generating capacity, claims Colombian tax payers have been short-changed by as much as US$1.5bn. But local brokers say the sale price actually exceeded fair value. On the left Clara López Obregón of Polo Democrático has claimed electricity tariffs are likely to go up as a result of the privatisation. The government intends to use the proceeds from the sale to fund its ‘Fourth Generation’ (4G) road-building programme.

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