S&P Upgrades Colombia

Grammy award-winning, Colombian singer Shakira was honored by Harvard University with 2011 Artist of the Year a few weeks ago. After accepting the award, Shakira challenged Harvard students to take action and help 200 million children by improving education in developing countries. She admitted she’s certainly no Mother Teresa, but certainly sees the value in educated minds as the foundation of wealthy societies, especially in Colombia.

The focus on Colombia continues, as Standard and Poor’s just upgraded that country’s credit rating. Colombia now joins a growing group of investment grade countries in the region including Brazil, Mexico, Chile, Panama and Peru.

This sovereign debt rating upgrade is a precursor of better times ahead.

Standard & Poor’s also boosted the corporate credit and debt rating on the country’s state-owned energy company, Ecopetrol SA (NYSE:EC) elevating it to investment grade status and reducing interest expense costs for future projects. Just in time too! Ecopetrol wants to expand its operations, and it’s not the only company exploring for oil in Colombia. OGX Petroleo e Gas Participacoes SA (which is owned by Brazilian billionaire Eike Batista) recently announced concession agreements with the Colombian government for the exploration of five oil blocks.

Today, access to capital markets for Latin American companies still means going through North American exchanges and investors. Although only a handful of Colombian-domiciled companies currently have ADR programs in the U.S., the number of IPOs from the country is expected to grow, including gas and electricity company, Grupo de Energia de Bogota and banking company, Banco Davivienda.

Take a look at other emerging market companies currently raising capital to fund internal growth or increasingly mergers.

Chilean bank, Banco de Chile (NYSE:BCH) is taking the organic route to grow in its own geographic market. The bank announced plans to raise $100 million in capital and reinvest CLP 67.2 billion ($138.3 million) of its 2010 profit to increase its client base.

Brazil-based steel maker, Gerdau SA (NYSE:GGB) is building up a war chest for acquisitions. The company recently announced plans to raise a whopping BRL 3.8 billion to BRL 4.2 billion ($2.2 billion-$2.5 billion) to fund its investments.

Spain’s Repsol YPF SA (NYSE:REP) is reducing its holdings in Argentina-based YPF SA (NYSE:YPF) to 70% ownership through direct strategic sales and a $1 billion public equity offering. Repsol remains a long term strategic investor in Latin America and has been made no secret that it was seeking to shift its geographic portfolio and reduce risk. This has had a temporary negative price effect on YPF shares, which now yield 7%.

For every seller there is ultimately a buyer and yes, I’m still very positive on Latin America! Places like Argentina were once favorites among investors and with the recent economic improvements in the region may again be too.

So let me leave you with one thought: One day, granted not too soon, Argentina will be investment grade. Today Columbia, tomorrow Argentina!

That’s my take on it. Happy trading!

Rudy

Rudy Martin, editor of Emerging Market Winners, is widely recognized as an authority on stock and ETF investing. With more than 25 years of investing experience, Rudy started his investment career by co-managing a $2 billion private equity portfolio for Transamerica. He also served as an analyst for DeanWitter and Fidelity Investments, and research director of a quantitative research firm that is now part of TheStreet.com. Recently he has been providing his investment ideas directly to a select list of global hedge funds as Managing Director of Latin Capital Management, an institutional money management firm with more than $180 million in assets under management. For more information on Emerging Market Winners, click here.

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Welcome to Colombia!

03/31/11 Gaithersburg, Maryland – “Would you invest in Brazil 15 years ago if you had the chance?” our Colombian host asked me one night, in an effort to frame the opportunity here.

“Of course, that would’ve been a home run,” I said.

“Welcome to Colombia.”

We were sitting in a comfortable restaurant in Medellin’s downtown area. Medellin is a pretty city that spills out across a river valley and creeps up the walls of the surrounding mountains. Medellin’s nickname is the City of Eternal Spring, thanks to its temperate weather. If you have an image of Medellin (and Colombia) as a violent place, a visit here would change your opinion. We could have been in any number of cities around the world. I never felt unsafe. (As with any city, there are good and bad areas.) The bars and restaurants were full at night. The skyline was lit with tall buildings. The sidewalks busy with people. It was not always so, as Medellin was once a notoriously dangerous city.

Security issues have been a huge problem in Colombia’s past, but it is much improved, and most of the remaining issues are deep in the jungles, near the porous borders with Venezuela or Ecuador. (In fact, while we were here, rebels snatched 23 Talisman workers doing seismic work near the Venezuelan border. Even these occurrences, however, are now rare.)

Today, Colombia is a young and growing emerging market that has a lot of catching up to do – and that is the core of the investment opportunity here.

For example, one day, we visited Cementos Argos, the largest cement company in Colombia, with a 51% market share. It is an asset-rich company. In addition to its cement operations, Argos owns a huge land bank of 5,000 hectares and a portfolio with stakes in three other listed Colombian companies worth $3.3 billion and 600 million tons of coal reserves.

We met with Ricardo Andres Sierra, the CFO, who told us in the bad old days, plants could work only from 6 a.m. to 6 p.m. And there were parts of the country where the company simply did not go. But today, the plants run 24/7. “We can go wherever we want,” he said.

Argos has a huge opportunity in Colombia. As is often the case when a boom arrives, the building of the infrastructure to support the boom comes later. Colombia is way behind in infrastructure. It needs miles and miles of roads. It needs bigger ports, expanded airports and railroads. This has been a recurring theme on our trip, something we heard everyone mention.

Sierra gave us an arresting statistic. He said Colombia consumes about 220 kilograms of cement per capita annually, compared to 500 kilograms for Vietnam. The point being that Colombia is well below the consumption rates of comparable developing economies. There is lots of room to grow.

We talked about new road projects, such as Ruta del Sol, which will connect Bogota, the capital in the Andes, with Santa Marta, a port city on the Caribbean Sea. We talked about the Cartagena Refinery expansion. Both are huge projects, “as big as the Panama Canal expansion,” Sierra said. There is also a tunnel project that will connect Bogota to the Pacific port at Buenaventura. There are projects for hydropower plants, bus systems, pipelines and much more.

“Infrastructure is the key to growth in Colombia, that’s for sure,” Sierra ventured.

This has also been one of the surprises of the trip. We had heard and read, of course, about the relative lack of good infrastructure in Colombia. But it is another thing to be down here and see it firsthand.

Traffic in Bogota, for example, is impossible – or nearly so. The roads are choked with small cars that go nowhere fast. It seems to take forever to go even short distances. One of our contacts here told us that Colombia has only 300 kilometers of two-lane two-way roads.

The government knows this, and there is a lot of money slotted for infrastructure development in the coming years. Argos is in a great position to profit from the build-out of Colombia’s infrastructure.

So infrastructure is one of the big investment themes we’ve found here.

Another is oil, which is not surprising, as oil makes up 40% of Colombia’s exports and is one of the headline-grabbing investment stories in Colombia. The years of violence in the country hampered exploration and development of Colombia’s oil assets. The easing of security issues has brought back the oil companies in a big way. Also, Hugo Chavez has chased out a lot of the talented oilmen from Venezuela. Many came to Colombia and used their expertise in heavy oil to tap Colombia’s rich Llanos Basin, in the east, which shares a similar geology with Venezuela’s prolific fields.

What may surprise you is just how quickly it’s all happened. Much of the acreage is already locked up. When new blocks come up for bid, they are heavily contested. We met with Charles Gamba, president and CEO of Canacol Energy. He told us there were 67 bidders on their latest block. This industry is developing very, very quickly.

In 2003, Colombia licensed only 4% of its available acreage. Today, that’s 60%. So there are several companies here that have stocked up an enviable portfolio of prospects to explore. And oil and gas will be an important driver of Colombia’s economy for years to come as it develops further.

In any case, there are, as in any market at any time, opportunities. And there are certainly opportunities here.

Stay tuned!

Regards,

Chris Mayer
for The Daily Reckoning

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Welcome to Colombia!

03/31/11 Gaithersburg, Maryland – “Would you invest in Brazil 15 years ago if you had the chance?” our Colombian host asked me one night, in an effort to frame the opportunity here.

“Of course, that would’ve been a home run,” I said.

“Welcome to Colombia.”

We were sitting in a comfortable restaurant in Medellin’s downtown area. Medellin is a pretty city that spills out across a river valley and creeps up the walls of the surrounding mountains. Medellin’s nickname is the City of Eternal Spring, thanks to its temperate weather. If you have an image of Medellin (and Colombia) as a violent place, a visit here would change your opinion. We could have been in any number of cities around the world. I never felt unsafe. (As with any city, there are good and bad areas.) The bars and restaurants were full at night. The skyline was lit with tall buildings. The sidewalks busy with people. It was not always so, as Medellin was once a notoriously dangerous city.

Security issues have been a huge problem in Colombia’s past, but it is much improved, and most of the remaining issues are deep in the jungles, near the porous borders with Venezuela or Ecuador. (In fact, while we were here, rebels snatched 23 Talisman workers doing seismic work near the Venezuelan border. Even these occurrences, however, are now rare.)

Today, Colombia is a young and growing emerging market that has a lot of catching up to do – and that is the core of the investment opportunity here.

For example, one day, we visited Cementos Argos, the largest cement company in Colombia, with a 51% market share. It is an asset-rich company. In addition to its cement operations, Argos owns a huge land bank of 5,000 hectares and a portfolio with stakes in three other listed Colombian companies worth $3.3 billion and 600 million tons of coal reserves.

We met with Ricardo Andres Sierra, the CFO, who told us in the bad old days, plants could work only from 6 a.m. to 6 p.m. And there were parts of the country where the company simply did not go. But today, the plants run 24/7. “We can go wherever we want,” he said.

Argos has a huge opportunity in Colombia. As is often the case when a boom arrives, the building of the infrastructure to support the boom comes later. Colombia is way behind in infrastructure. It needs miles and miles of roads. It needs bigger ports, expanded airports and railroads. This has been a recurring theme on our trip, something we heard everyone mention.

Sierra gave us an arresting statistic. He said Colombia consumes about 220 kilograms of cement per capita annually, compared to 500 kilograms for Vietnam. The point being that Colombia is well below the consumption rates of comparable developing economies. There is lots of room to grow.

We talked about new road projects, such as Ruta del Sol, which will connect Bogota, the capital in the Andes, with Santa Marta, a port city on the Caribbean Sea. We talked about the Cartagena Refinery expansion. Both are huge projects, “as big as the Panama Canal expansion,” Sierra said. There is also a tunnel project that will connect Bogota to the Pacific port at Buenaventura. There are projects for hydropower plants, bus systems, pipelines and much more.

“Infrastructure is the key to growth in Colombia, that’s for sure,” Sierra ventured.

This has also been one of the surprises of the trip. We had heard and read, of course, about the relative lack of good infrastructure in Colombia. But it is another thing to be down here and see it firsthand.

Traffic in Bogota, for example, is impossible – or nearly so. The roads are choked with small cars that go nowhere fast. It seems to take forever to go even short distances. One of our contacts here told us that Colombia has only 300 kilometers of two-lane two-way roads.

The government knows this, and there is a lot of money slotted for infrastructure development in the coming years. Argos is in a great position to profit from the build-out of Colombia’s infrastructure.

So infrastructure is one of the big investment themes we’ve found here.

Another is oil, which is not surprising, as oil makes up 40% of Colombia’s exports and is one of the headline-grabbing investment stories in Colombia. The years of violence in the country hampered exploration and development of Colombia’s oil assets. The easing of security issues has brought back the oil companies in a big way. Also, Hugo Chavez has chased out a lot of the talented oilmen from Venezuela. Many came to Colombia and used their expertise in heavy oil to tap Colombia’s rich Llanos Basin, in the east, which shares a similar geology with Venezuela’s prolific fields.

What may surprise you is just how quickly it’s all happened. Much of the acreage is already locked up. When new blocks come up for bid, they are heavily contested. We met with Charles Gamba, president and CEO of Canacol Energy. He told us there were 67 bidders on their latest block. This industry is developing very, very quickly.

In 2003, Colombia licensed only 4% of its available acreage. Today, that’s 60%. So there are several companies here that have stocked up an enviable portfolio of prospects to explore. And oil and gas will be an important driver of Colombia’s economy for years to come as it develops further.

In any case, there are, as in any market at any time, opportunities. And there are certainly opportunities here.

Stay tuned!

Regards,

Chris Mayer
for The Daily Reckoning

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here