Latina Finance & Co Corporate Finance Advisory in Latin America Latin America 2009 Political, Economical and Financial snapshot January 2010 Latina Finance & Co www.latinafinance.net Table of contents 1. Introduction 2. Latin America political 2009 3. Latin America economical 2009 4. Latin America financial 2009 5. Latam – Europe business 2009 6. Outlook 2010 7. Contact 8. Disclaimer Latina Finance & Co 2 1 . Introduction We are very happy to provide you with a quick overview of what has been the year 2009 in Latin America. It is not an extensive review but much more a snapshot which should hopefully provide you with a helicopter view of what has been a very interesting year. We have now entered 2010 and the prospect for this year is encouraging with continuous political stability in the key countries of the region and confirmation of an increasing democratic environment. Brazil is taking the lead of the region’s economic recovery with Peru, Chile and Colombia following the path. Mexico should follow the footsteps of the US progressive recovery. Argentina still needs to fix its debt restructuring issue which it will hopefully achieve in 2010. After a great 4Q rally, financial markets seem to be pursuing a positive trend in early 2010. Equity and capital markets should keep a strong momentum while the bank market might reopen as banks will have re-adjusted their capital ratios . Given the strong demand for infrastructure financing, project financing should continue to recover with the support of multi and bilateral organizations such as BNDES, IADB, IFC and EIB. One can also see renewed interest from large US private equity funds which could tempt European PEs to enter the region. Finally we could also see the confirmation of a new trend in the M&A flow with more and more Latin American companies completing offshore acquisitions. We hope you will find this quick brief interesting. The Latina Finance team will remain committed and at your disposal throughout 2010. Florent Michel Managing partner January 2010 Latina Finance & Co 3 2 . Latin America political 2009 POLITICS 2009 DIPLOMACY EVENTS Still a continent of two blocks with profound Honduran army removed President political differences between the countries Manuel Zelaya of the region Venezuela increased border tensions Venezuela, Bolivia, Ecuador and Nicaragua with Colombia on US base presence pursuing their anti capitalist (US) path. Fujimori in Peru sentenced for 25 years Chile, Mexico, Peru, and Colombia keeping warm relations with the United States; the Brazil will host 2016 Olympics ( & soccer United States has free trade agreements world cup 2014) (FTAs) with the first three. Colombia’s one should be ratified soon. Ahmadinejad visited Brazil, Bolivia and Venezuela Brazil has clearly reinforced its regional leadership under Lula’s presidency. Chile joined the OECD Argentina relatively isolated but Countries for the “Bolivarian entertaining good relationship with her alternative” agreed to use a common neighboring countries currency for their trade in 2010 Latina Finance & Co 4 2 . Latin America political 2009 POLITICS 2009 ELECTIONS CONSTITUTIONAL CHANGES Some presidents took the advantage of local Peru , Alan García political stability to convince parliaments to make favorable constitutional changes. Costa Rica, Oscar Arias Felipe Calderon ( Mexico) and Luis Inacio Nicaragua, Daniel Ortega Lula de Silva (Brazil) obtained constitutional changes to permit one further term each. Bolivia, Evo Morales Hugo Chavez ( Venezuela)and Evo Morales Ecuador, Rafael Correa (2nd term) (Bolivia) have managed to change the constitution to no limits in mandate terms. Uruguay, Jose Mujica Alvaro Uribe Vélez (Colombia) could run for a Chile, Sebastian Piñera (Jan 2010) third mandate in 2010 if referendum approving second reelection passes. Daniel Ortega of Nicaragua obtained approval for potential reelection. Latina Finance & Co 5 3 . Latin America economical 2009 ECONOMICS 2009 MACRO PICTURE 2009 The damage created by the world financial crisis had substantial effects on Latin America. However one can say that the region has GDP -2,5 %* relatively better resisted the crisis wave . Latam countries benefited from recent years of more sophisticated and rigorous economical and fiscal policies. Net net the situation is MEXICO -7 % not catastrophic with an end 2009/beg 2010 showing some signs of recovery. Mexico suffered the most (given interpenetration with the US) while Brazil, Peru, Colombia, Argentina, Bolivia, and Uruguay EXPORTS -24 % resisted remarkably. Latin American countries were mostly hurt by the combination of four factors. IMPORTS -25 % FDI -40 % Foreign direct investment Tourism M&A -30 % Commodity prices Foreign remittances Overall drop in imports by 25% and export by 24% for the LAC region. Biggest drop since 1937. Export drop of 42% in mining and petroleum sectors * OECD estimate could be revised down to 1,8 % (ECLAC) Latina Finance & Co 6 3 . Latin America economical 2009 ECONOMICS 2009 BUSINESS EVENTS Super Brazil: Rio won the Olympics (us$ 50 bio in investments planned for the next six years) Super Peru: Peru's signed free trade agreements with China and the United States and also with Korea. At the same time the Japan-Peru investment agreement entered into force in December. Peru had the biggest FDI increase of all Latam countries in 2009 (+28% at us$ 6,2bio). Venezuela entered into recession, worst GDP fall of Latin America (-2,3 %). Recession as well for Ecuador. Argentina still stuck with its debt problem and has not resolved the us$ 6 bio Club de Paris issue. Pursuing nationalization. Super China : China has been negotiating deals to double a development fund in Venezuela to us$12 bio, lent to Petrobras us$ 10 bio and Ecuador us$1 bio to build a hydro power plant. China also supported Argentina’s trade. Latina Finance & Co 7 4 . Latin America financial 2009 FINANCIAL MARKETS 2009 BANK MARKET PROJECT FINANCING 25 42 10 20 08 09 08 09 Total Latam loan volume (us$ Bio) source IFR Total Latam PF loan volume (us$ Bio) source Pfi Total loan volume fell down from us $ 25 bio in 08 to circa Continuing drop of interest of commercial banks, higher us$ 10bio in 09. Banks in latam continued to finance loan pricings, shorter tenors, more contrainuous covenants growth with domestic sources of funding. Profitability and and debt security packages in general. ECAs and loan portfolio quality remained good except for Mexico Multilaterals presence were absolutely key to close deals (consumer portfolios) (including BNDES). Calyon, Mitsubishi, West Lb and BNP led the pack in 2009. Exit of numerous European retail banks and also US banks creating a shortage of liquidity. Handful of international Focused on mining , natural resources and energy. Key banks remained active such as BBVA, Santander ,HSBC, deals included Brazilian Hydro-plants (Jirau & San Calyon, and BNP Paribas. Antonio)for us$ 11bio. Minera copper Esperanza us$ 1,05 bio loan, us$300 MM 16.5 yr loan for Central Transactions limited to restructurings, bi-laterals or clubs Termoelectrica Andina (Chile), and us$680.7mm loan for deals ( 5 yr max).Largest deals included the us $ 1.5bn 3/5 the Manzanillo LNG project(Mexico). IFC us$153mm A/B year deal by Grupo Mexico (Asarco acquisition) and loan for Pan American Energy (Argentina) . In the road Brazilian pulp and paper Fibria for us$ 1 bio. sector a us$ 895mm loan was signed for Sao Paulo Beltway. Panama received a us$ 2,3 bio financing for the canal (involving 5 MLAs). Latina Finance & Co 8 4 . Latin America financial 2009 FINANCIAL MARKETS 2009 CAPITAL MARKETS RATINGS Some changes took place in 2009 but Latin America is still a world of three different classes with first four IG 65 countries, Chile, Mexico, Brazil and Peru. Then the “to be” IG which are countries that could potentially 22 become investment grade in 2010 like Colombia or 08 09 Panama. Lastly, some countries continue to struggle and Total Latam bond volume up to Nov 09 (us$ Bio) source IFR remain close to default rating such as Argentina or Bolivia (both B-) . Absolute record year contrary to the rest of emerging markets where total bond issuance fell to usd$ 350 bio -Key rating actions of the year included: from 420 in 08. Very weak 1st half with lack of appetite and under writers. Wake up call in Sept starting an astonishing 2nd half rally . In November Latam had tripled 16 Dec : Peru’s upgraded by Moodys to the amount issued in 08 . Including series of Baa3 ( IG) restructuring and distressed offerings : Vitro (Mex) us$ 1,29 bio senior note restructuring. Caribbean Cap Cana 23 Sept :Brazil upgraded by Moodys to exchange offer by offering us$136 mm in senior secured Baa3 (IG) notes. Nov/ 15 Dec : Mexico downgraded to Bond volumes issuances skyrocketed in both sovereign BBB, Baa3 and corporate areas. Brazil leading the way by far. Flurry of 10 & 15 year sovereign (Peru,Chile), Brazil up to 32 years in Oct. Large corporate issuances of Vale, Braskem, Petrobras ( us$ 4 bio, 10 and 30 yrs 4x oversubscribed). Latina Finance & Co 9 4 . Latin America financial 2009 FINANCIAL MARKETS 2009 EQUITY MARKETS PRIVATE EQUITY Private Equities showed more interest. Brazilian funds 95 have been set up. Some countries are keeping regulatory 50 constraints (Mexico, Argentina) and some key businesses 18 remain family owned which still limits opportunities. Attraction goes to Mexico, Brazil, Colombia & Peru. World Asia Latam IPO volume in 2009 (us$ Bio) Some funds are already set up led by US Private equity firms such as Carlyle