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

Region: Corporate Radar

Oi files for bankruptcy: Oi, the only locally controlled mobile phone operator in Brazil, filed for bankruptcy protection with debts of BRL65bn (US$19bn) on 20 June, after rescheduling talks ahead of a EUR231m bond repayment failed to produce agreement. The company has been badly affected by the Brazilian recession, but analysts say it also suffered from serious problems caused by an attempt by the previous Partido dos Trabalhadores (PT) government to turn it into a ‘national champion’. Despite big ambitions and government help, the company was mismanaged (it had six chief executives in five years) and became heavily leveraged. State development banks BNDES and Caixa Económica Federal are reported to have lent BRL13bn (US$3.8bn) to the company.

Although it is a big fixed-line player, Oi is the smallest of Brazil’s four main mobile operators, with an 18.6% market share, compared to Vivo (controlled by Telefónica of Spain) with 28.6%, Tim (controlled by Telecom Italia) with 25.9% and Claro (owned by Mexico-based América Móvil with 25.3%). Oi’s future is now uncertain, with options including a takeover by another player (although a previously planned merger with Tim now looks off the table), restructuring, or break-up. Some analysts argue that this might be a good moment for the market to consolidate, reducing to three rather than four main players. The administration led by the interim president, Michel Temer, which is seeking to control fiscal spending and follow more business-friendly policies, has said it will not bail the company out with new loans.

Banco Galicia bets on Argentine recovery: Although there are doubts among some analysts over the speed at which the Argentina government led by President Mauricio Macri will tame inflation and build an economic recovery, Banco Galicia is confident of a positive outcome. The bank announced in June that it would double its investments in infrastructure to US$182m, in expectation of lower inflation and economic growth in 2017. General Manager Fabián Kon said 2016 would be a year of “transition” for the Argentine economy but that the outlook for 2017 was “auspicious”. Kon said the bank would invest ARS2.5bn (US$182m) to open new branches, modernise its headquarters and incorporate new IT systems. As a result of the government’s more market-friendly policies, the bank was expecting a “natural” expansion of credit to individuals and corporates and the emergence of new investment options. Galicia also expected inflation to begin easing down from June, which would play a key role in allowing the banks to move from very short to more longer-term lending. Bank credit is still low as a proportion of GDP, indicating that there is plenty of room for growth. Banco Galicia has round 3.3m customers, ARS107.8bn (US$7.2bn) worth of deposits, 261 branches, 5,700 employees, and net assets of ARS15bn (US$1bn).

Avianca not for sale: Colombia-based airline Avianca is talking with others about potential strategic partnerships, but is not itself up for sale, chairman Germán Efromovich told the Caracol radio station in mid-June. His comments followed reports that HNA Group of China had expressed an interest in acquiring Avianca Holdings and the Avianca Brasil subsidiary, both controlled by Efromovich’s Synergy Group. US-based United Continental Holdings and Delta Air were also reportedly interested. But Efromovich told Caracol, “Avianca is not up for sale. Talks about strategic alliances go on all the time.” He added that the point of them was to seek a faster rate of growth for the business. He added that the talks might lead nowhere, or might on the other hand end up “with an alliance that is very important for the future of the company”. The Avianca group also includes Colombia-based freight service Tampa Cargo SA, Ecuador-based Aerolíneas Galapagos (known as Aerogal) and Grupo TACA of Central America. Avianca Holdings companies carried 28.3m passengers in 2015, and operate a network with 105 destinations in 28 countries using a fleet of 177 aircraft.

New Mexican petrol stations: For the first time in eight decades, there are now petrol stations in Mexico that are not trading under the Petróleos Mexicanos or Pemex brand, owned by the state oil company of the same name. The change is small – only three new stations in early June – but symbolically important, as it marks the introduction of competition into the downstream end of the oil and gas business, as contemplated in the 2014 energy reform. One station is now operating in Mexico City under the Hidrosina brand, while a further two in Campeche and Mérida are selling fuel under the La Gas brand. Grupo Hidrosina, set up in the early 1990s, has operated around 30 Pemex-branded stations as a concessionaire for a number of years. “With the collaboration of Pemex we signed an agreement to use a different brand and test the success that may, or not, work for the clientele”, said Víctor Ruiz Iriarte, director of operations at Hidrosina. Around 20 Hidrosina-branded stations will be piloted this year, he added. More new petrol station brands are due to make their appearance: Gulf Oil of the US has said it will be opening four petrol stations in Mexico in June and July.

Legal wrangles over the Chapo name: A series of potentially costly legal disputes are looming over the media treatment of the life and times of Joaquín ‘El Chapo’ Loera Guzmán, the reputed leader of the Sinaloa drug-trafficking and criminal cartel, currently in a Mexican prison awaiting the outcome of extradition proceedings to the US. The disputes have been triggered by an announcement in May that the US-based Spanish television network Univisión and the global streaming film and TV service Netflix plan to co-produce a “boundary-breaking drama” series called ‘El Chapo’, based on his life and due to be broadcast in 2017. No so fast, said Andrés Granados, a lawyer for the real-life Chapo. According to him, Univisión and Netflix must seek his client’s authorisation, something that could be available “at the right price”, adding that El Chapo was also ready to provide more information to improve the proposed series. Granados has pointed out that El Chapo’s family has already registered his name as a brand with the Instituto Mexicano de la Propriedad Industrial (IMPI). Potentially a further complication is that Granados is the same lawyer who negotiated on his client’s behalf with the Mexican-American actress Kate del Castillo last year, giving her the rights to film a documentary on the drug lord. Mexican security forces tailed Del Castillo and the US actor Sean Penn on their way to a meeting last year with El Chapo in Mexico, who was then at large, and used some of that the information to capture him in January. Presumably Univisión, Netflix and Kate del Castillo would have to come to some kind of an agreement on film and documentary rights. According to Charles J. Glasser, Adjunct Professor of Media Ethics at New York University, under the First Amendment journalistic accounts of newsmakers are protected from such rights claims because “otherwise bad guys could quash coverage”. But those who are the subjects of fictionalised accounts, even if they happen to be criminals, do have a right to negotiate over the intellectual property rights in, for example, the use of their name. As Glasser put it, however, “Netflix and Univisión have a PR problem… how will people feel about them ‘getting permission from’ – and probably paying – a notorious bad guy?”

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