ABN Amro has reorganized its Latin American coverage and is starting to reap the benefits. It was one of the bookrunners on CVRD’s record-breaking bond deal last month. The Brazilian iron ore producer sold Latin America’s biggest ever global bond, issuing $3.75 billion of 10- and 30-year paper.
Pablo Venturino, ABN Amro’s head of Latin American debt capital markets, says that this year the bank has made real progress in the region, which, for the first time, is expected to account for one-third of the firm’s emerging markets profits this financial year. After a restructuring that involves all the country teams – including Brazil – reporting to its New York office, ABN Amro is an interesting example of how smaller banks are tackling Latin America by focusing on specific products and countries.
Radar screen
“We have put a great deal of effort into integrating Brazil with the rest of our Latin America operation, whereas in the past it has been more like a separate region,” says Venturino. “We’re not trying to be among the top two or three banks in Latin America debt league tables, because to get there you have to do big sovereign deals and we’re not necessarily on all of their radar screens. I’m more interested in the fee table and in increasing my revenue per employee. We’re targeting perhaps three specific markets where we see the greatest potential: high yield, acquisition finance and asset-backed securitizations.”
This focused approach also extends to the way in which ABN Amro targets its geographical coverage. Mexico, for example, is seen as having vast potential. “We have revamped the derivatives, sales and trading desks there,” says Venturino, “and we are still hiring for the new origination team which should be ready by the start of next year.”
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“We’re targeting perhaps three specific markets: high yield, acquisition finance and asset-backed securitizations”
Pablo Venturino, ABN Amro |
Venturino had celebrated his birthday the day before Euromoney called, affording him an increasingly rare day off. Running the whole of the bank’s Latin America business from New York will surely keep him busier than ever, but is there a more serious risk that, after the integration, ABN Amro’s teams of bankers will lose some of their autonomy and dynamism by having to report to Venturino?
“I don’t think so,” he says. “I don’t see this as a centralization of our business, it’s more an integration. If you’re doing a 144a deal, or something that’s extremely complicated, then it’s reasonable to get leadership from New York. But for a local-currency deal, say something in Brazilian reais, my guys on the ground in that country will be running the show.”
There are already signs that ABN Amro’s focus on the increasingly active acquisition finance market in Latin America is working. As well as the global bond, it was one of four banks that put together the $18 billion bridge loan for CVRD’s attempt at a takeover of Canada’s Inco.
The Dutch bank also worked with Deutsche Bank and Ashmore Investment Management to bid for Prisma Energy, the company that controls Enron’s remaining emerging market assets. Venturino calls this “one of the most complicated deals I have ever worked on”.
Attractive risk
Despite the hard work involved, this kind of private equity deal will become increasingly common as investment banks seek to put their excess capital to work. Margins on straight debt and equity deals in the region are being squeezed as competition increases, so riskier but more lucrative trades such as the Prisma deal become more and more attractive.
Rivals are certainly starting to take note. “They have done a reasonable job in the past,” says a debt capital markets banker at one of the top Wall Street banks, “but I think they’re getting more aggressive in deal chasing now. I would say that one or two of their high-yield deals have not gone entirely as they might have hoped, but some of the more recent ones have been juicy and they are right to be looking at the more complex stuff where the size of your presence in the region is not necessarily a major advantage. They’re not a bank that’s competing against us on all the big deals in Latin America, but I wouldn’t be surprised if we see a lot more from them once the reorganization is fully complete.”
More action
Venturino’s outlook for the region is certainly positive. “In 2006 there were so many elections that may have restricted sovereign issuance but the overall conditions are now very good. Some of the sovereigns were able to start pre-funding for 2007 – they’re getting very professional – and with volatility coming down and new administrations in place I think that the start of next year could see a very active debt market in Latin America.”
Investors, too, are keen on the region: the market for high-yield debt that ABN Amro is so keen to tap is especially popular among foreign institutions, and Venturino agrees that hedge funds are taking a particular interest in smaller credits. The conditions seem ripe; it will now be interesting to see whether the Latin American reshuffle has thrown its aim or whether it can emerge as the kind of tight, focused operation that will contribute even more to the bank’s emerging market bottom line.