Some of Argentina’s biggest companies are raising finance to invest in the booming agriculture sector in Latin America, on the back of steep rises in soft commodity prices.
Cresud, the agricultural arm of one of Argentina’s biggest investment groups, Irsa, and the country’s biggest landowner, announced at the end of February that it planned to issue a further 180 million shares to raise $300 million.
The company, which is listed on the Buenos Aires stock exchange and Nasdaq, plans to use the fresh capital to buy land in Argentina, Bolivia, Paraguay and Uruguay (until now outside Argentina it had a presence only in Brazil).
Another leading Argentine agricultural group, Los Grobo, which is mainly owned by the Grobocopatel family, also recently announced that it was forming a joint venture with Brazilian investment group Pactual Capital Partners (PCP) to invest in agricultural land in Brazil. It is understood that Pactual plans to invest $100 million in Los Grobo for a minor stake in the company.
PCP was founded by André Esteves, aged 38, who became one of Brazil’s youngest billionaires after UBS acquired Brazilian investment bank Pactual in 2006. As well as running UBS Pactual, last August he became the global head of fixed income at UBS.
Alberto Saravia, chief executive of Saravia Financial Management, an Argentine fund manager, says: “I think these moves by Argentine companies are welcome news. Brazilian and Chilean groups have been acquiring many Argentine companies, and it is about time that the country’s firms started to expand into the Mercosur region.”
Cresud plans to buy land for crop production, which is becoming increasingly lucrative. During the past year, the price of soya beans jumped by 82%, wheat by 175% and corn by 37%, according to the Chicago Board of Trade.
Chinese demand
Chinese demand for soya in particular is growing at a spectacular pace – in dollar terms, the annual rise in demand was 165% between 2001 and 2006, according to the OECD.
Los Grobo has a different business model: it leases land and specializes in the crop production, marketing, logistics, and other intermediate phases in agribusiness.
Sandy Carola, Argentina analyst at Credit Suisse, says: “One of the main reasons why Argentine agricultural groups are expanding into Brazil and other countries is the high taxes that Argentina levies on the export of these products. Other countries just do not have such high taxes.”
At the beginning of March, the Argentine government raised the export tax on soya to 44.1% from 35% at current commodity prices.
Prime agricultural land is also cheaper in some of its neighbours than in Argentina (according to local real estate group Nordheimer, price per hectare in Argentina is $10,000 while it is estimated to be as low as $2,000 in Paraguay).
Irsa is one of the few Argentine companies that is able to raise large sums locally. It is popular with pension funds and life assurance funds, which manage more than $30 billion.
Argentina has capital controls in place that mean foreign investors must leave 30% of any portfolio investment in the country for one year.
Along with inflation, estimated at about 20%, this has been one of the main impediments to the development of the local financial markets. International fund managers are not yet prepared to invest in Argentine stocks despite a rise in earnings per share of 72.4% during the past three years and a price to cashflow ratio of 8.8, according to FactSet.
