Translatinas

Pursuing Intraregional Opportunities

Summary

The regional expansion of the LATAM companies has been an important phenomenon of the last decade

Why are Translatinas expanding abroad? Risk diversification versus market seeking

The direct investments done by the Translatinas outside of their country of origin have accounted for an important part of the FDI flows in LATAM.

Translatinas, “a lonely Brazilian and Mexican race?”

Case studies: Examples of Regionalization

Translatinas’ financial needs

Conclusion

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1 Why are Translatinas expanding abroad? Risk diversification versus market seeking

Push factors: Competition as a blessing in disguise.

• Between 1991 and 2001, the ownership of the 500 largest companies in Latin America changed dramatically…

• … With non Latin multinational ownership growing to 39% from 27%. The rising global competition pressured local Latin companies.

• The most ambitious are aiming to compete with the world’s largest companies beyond Latin America. However to date only a very happy few local Latin firms have taken on the world or tried to create large multinationals.

• Investors are welcoming such expansion recognizing the value of combining emerging markets companies with great growth potential with OECD companies with brand recognition and access to large scale markets.

OECD Development Centre

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The cost of capital

• Upon securing top positions at home, some Latin firms started to expand more aggressively abroad. • Typically they followed a translatina cycle starting to increase exports to neighboring countries; then establishing alliances to obtain access to distribution channels; and subsequently setting up small operations abroad or making acquisitions. • But this ultimate stage hard to reach. With the exception of a very happy few (e.g., CVRD, Cemex, Gerdau) translatinas remain heavily constrained by the cost of capital to expand abroad. • It is worth to notice that depending on its expansion strategy (i.e., South-South vs. OECD countries) the impact on cost of capital could be significant. For instance, Techint, Gerdau and Votorantim are benefiting from a more “OECD- like” strategy vs. Petrobras with its South-South approach.

OECD Development Centre

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2 The direct investments done by the Translatinas outside of their country of origin have accounted for an important part of the FDI flows in LATAM

Direct Investment Abroad (DIA), 1980 – 2004 (in USD mln) Brazil Mexico

Argentina Chile

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Source: CEPAL DIA Flow (left axis) DIA Stock (right axis)

We have seen a major increase of M&A activities sponsored by Translatinas, together with a significant increase of “South-South” FDI flows past 5 years

South-South FDI on the rise USD bln Acquisitions in LatAm by LatAm companies from 2000-2006 180 163.5 159.3 USD mln 160 154.7 135.3 140 129.6 Including internal Excluding internal 120 market market Brazil 62.8 5.6 100 90.3 Mexico 21.7 10.2 80 53.0 Chile 10.8 2.3 60 49.7 47.4 38.3 Argentina 5.4 3.5 40 33.1 Colombia 4.3 1.2 20 14.0 Others 3.2 0.5 0 Total 108.3 23.2 1995 1999 2000 2001 2002 2003 Total FDI inflow s South - South FDI

So urce: Glo bal Development Finance, 2006

OECD Development Centre

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3 In 2005, more than 50% of the M&A operations in Latin America have been driven by local firms

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The emerging Translatinas: A lonely Brazilian and Mexican race?

Number of firms in Forbes 2000 The 50 more profitable firms 20 19 Number of firms in Forbes 2000

16 44 15

34

22 10 17 7

6 5 3

1 1 1 1 1 China India Brazil Mexico Chile 0 Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela

Source: Forbes The world´s 2000 largest Source: America Economia 2005 public companies, 2007

OECD Development Centre

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4 Brazilian Firms have started to expand overseas: global or pure regional players?

Top 100 firms in Latin-America Rk Firm Sector Utility Exports 50 45 04 (US$ Mill) % of sales % of sales 3 Petrobras Petroleum 6.728,7 16,5 11,2 40 12 Vale do Rio Doce Mining 2.433,5 23,5 30,6 40 32 Grupo Votorantim Holding 1.544,6 26,6 18,9 48 Usiminas Steel 1.137,3 24,7 9,1 21 Gerdau Steel 1.066,7 14,4 11,6 30 63 Gerdau Açominas Steel 935,6 24,5 22,4 40 Telesp Telecom 821,7 16,4 - 66 CSN Steel 746,6 20,2 20,2 20 144 CST Steel 611,9 31,9 53,5 94 Cemig Electricity 521,7 19,4 - 8 20 Electrobras Electricity 487,2 6,5 - 10 62 Embraer Aerospace 473,1 12,3 86,9 3 52 Ambev-CBB Drinks 437,6 9,7 - 1 1 1 1 208 Aracruz Celulose Paper 402,5 31,3 61,8 0 102 Balgo Mineira Steel 391,6 15,5 - Brazil Mexico Chile Argentina Ecuador Colombia Peru Venezuela 143 Cosipa Steel 363,2 18,8 33,5 31 Telemar Norte Leste Telecom 345,5 5,9 - Source: America Economia 2005 16 Odebrecht Holding 320,2 3,9 - Source: America Economia 2005

OECD Development Centre 9

Translatinas are spread out in the whole region

Bimbo Vitro Mabe Femsa Mexico Cemex Xignux Del Valle

Grupo Nacional de Chocolate Venezuela Grupo Polar Carvajal PDVSA Organización Corona ISA Colombia Centelsa Gerdau Grupo Argos Brazil Petrobras Ecopetrol Const. Norberto Odebrecht Grupo Team Ecuador / Peru Const. Andrade Gutierrez Alicorp Banco do Brasil Grupo Gloria Camargo Correa Votorantim Magnesita Paraguay Imbev Falabella Celulosa Arauco Natura Endesa Comercial Corza Chile Itausa Terranova Grupo Ultragas Uruguay Marcopolo Masisa SPL Coteminas Ripley Cencosud CMPC Crodelco Friboi Bertin Enap Corbanca Technint Lan Arlineas Farmacioas Ahumada Marfrig Argentina Arcor Madeco Petro. Comod. Rivadavia Bunge

* HQ – Headquarters Sullair Subs - Subsidiaries 10

5 Brazilian Presence in Latin America

Mexico • Usiminas • Localiza • Unigel Venezuela • Ultra • Andrade Gutierrez • Gol • Usiminas Colombia • Petrobras • Gerdau • CVRD/Braskem • Petrobras • Vicunha Ecuador • Localiza • Andrade Gutierrez

Peru Paraguay • CVRD • Localiza • Andrade Gutierrez

Bolivia • Localiza • Petrobras Uruguay Argentina • Localiza • Acesita • Belog/Arcelor Chile • Belgo/Arcelor • Gerdau • CVRD • Gerdau • Petrobras • Localiza • Usiminas • Gerdau • Localiza • Coteminas • CVRD

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Example of Regionalization: Brewers

(Kaiser)

2004 – SAB Miller

2005 – Inbev

2002 – Ambev

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6 Example of Regionalization: Soft-drinks

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Translatinas’ financial needs

The identified needs of these intra-regional companies are: – Advisory in the countries where they are newcomers or intend to penetrate. – To seek for new business opportunities in the countries where they perceive a potential expansion (M&A, Acquisition Finance, Project Finance). – The requirement to develop centralized treasuries to optimize funding and transactional costs across the region. – Tailored hedging structures including all currencies from the region – Insure itself against political risks (i.e., expropriation, convertibility, war and political stresses).

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7 Conclusions

There are a number of opportunities for regional companies such as mergers, acquisitions, IPOs, alliances and expansion in Latin America.

The main challenge from a CFO’s point of view is to be able to have financial partners with capacity to offer customized financial services on a regional and/or global scale.

Few banks and insurance companies are focused on developing products and provide support to such “emerging multinationals”.

Translatinas are a phenomena that is here to stay, which provides an unique opportunity for services providers (i.e., logistics, audit, consulting, legal companies) to adapt themselves to offer a customized product offering.

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ABN AMRO in Latin America – Strong Regional Footprint

Brazil is the 3 rd home Venezuela market for ABN AMRO Mexico Wholesale Banking after The Netherlands Wholesale Banking - 1of the 4 Int’l banks with full branch and the US.

Our regional presence Brazil provides local support Consumer & Commercial to our international Banking Colombia 1st foreign bank by deposits clients while Wholesale Banking- and 2nd largest foreign bank by maintaining a global -4 Payment & Collections total assets. perspective of each Centers in major cities client. Paraguay Consumer & Commercial ABN AMRO Banking complements its strong - largest bank presence in Latin - 283 employees -15 branches America by partnering with local institutions throughout the region. Peru Presence through Uruguay partnerships with Consumer & Commercial Banco Wiese Banking -largest private bank Argentina -547 employees Wholesale Banking -23 branches Chile - Present since 1914 Wholesale Banking Commercial Bank Consumer & Commercial Clients * Partnership with local banks

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8 Curriculum Vitae

Carlos Braga is the Commercial Client Segment head for the Spanish Speaking Latin America. Responsibilities include the coordination of the regional coverage in Argentina, Chile, Colombia, Venezuela, Ecuador and Mexico. He brings to ABN AMRO’s customers a diversified background as Head of Financial Markets Latin America Business Unit (2002- 2004), Head of Loan Products Latin America group (2000-2002). Prior to this posting Mr. Braga held several postings in the product & corporate bank areas of ABN AMRO in Brazil and US. Mr. Braga joined ABN AMRO Bank in 1988.

Mr. Braga received his Degree in International Trade Management from UCLA and his MBA from the Instituto Brasileiro de Mercado de Capitais (IBMEC), Rio de Janeiro. Mr. Braga also has a Degree in Economics from Faculdade Candido Mendes and a Management Corporate Resources Degree from IMD in Switzerland.

CARLOS BRAGA CARLOS BRAGA Executive Director Executive Director Commercial Client Segment Head SSC Latin America Commercial Client Segment Head SSC Latin America Tel.: 55-11-3174 7475 Tel.: 55-11-3174 7475 fax.: 55-11-3174 7477 fax.: 55-11-3174 7477 e-mail: [email protected] e-mail: [email protected]

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