Corporates from Colombia have a hard time in the international capital markets. However many miles they rack up meeting investors, the country remains best known for an infamous export and the cartels that produce it.
The violence and corruption of the drugs trade mean that investors still demand a hefty premium for investing in Colombia. But the stability that president Alvaro Uribe has brought means that investors bold enough to invest in the Bogotá market have enjoyed healthy returns in the past few years.
The share price of Bancolombia, the country’s biggest bank, has climbed by over 600% since 2002 to $13 at the beginning of this year. Now the bank is on the verge of a new era. With an important merger due for completion in the first half of 2005 and an Andean region free trade agreement with the US due to completed at about the same time, bank chairman, Jorge Londoño, hopes that the relative tranquillity of his country will enable the bank to compete on a more level playing field.
?We want to raise finance from the same sources as our competitors, and we also aspire to the same cost of capital in the medium term,? he says. ?In every process of opening up, there is a risk of losing competitiveness. It’s both a challenge and an opportunity. We will have to be very competitive, and that’s one reason we are so keen to get into the international markets.?
Londoño is sanguine about the challenges ahead. ?The financial sector in Colombia is already open,? he says. ?Multinationals have been able to come in since 1990 without restrictions. We’ve been able to defend our market so far, not through regulations but through our capabilities, so I think we are better off spending our time managing the company than looking for protection.?
The first challenge will be the integration of two other institutions into the bank. Grupo Suramericana, the holding company that owns 40.1% of Bancolombia, plans to merge the bank with two other financial institutions in which it holds major stakes.
Bancolombia will take over Corfinsura, a corporate bank with $2.3 billion of assets, and Conavi, a mortgage lender. The combined 2003 revenue for the three banks was $280 million and the group will have assets of about $11 billion.
Londoño is confident the deal will go through since it has the backing of the majority of shareholders. ?We don’t expect any objections from regulators because the deal makes sense,? he says. ?By merging the three institutions we can leverage the fact that they are leaders in their respective areas. A universal bank will be much stronger than Bancolombia is now.?
In the local market, the bank is already pretty strong. Bancolombia is the largest bank, with a retail banking market share of about 15%. The merged bank’s share will climb to more than 22%.
Londoño is excited about the prospect of selling payroll services to Corfinsura’s corporate borrowers and mortgages to his own 1.4 million individual clients.
The deal is also encouraging him to seek growth abroad. ?The deal will put us into the top bracket of banks in the region,? he says. Offshore activity is a big slice of the business. Bancolombia’s subsidiary in Panama contributed $45 million to last year’s profit.
Globalization benefits
?After the merger we’ll be big enough to take the next step,? says Londoño. ?But that will come from organic growth generated by the globalization of the Colombian economy rather than further acquisition. Our international opportunities are growing and changing in the same ways that the Colombian economy is ? through globalization.?
The most important development this year from that point of view is the prospect of a free trade agreement with the US. ?The US is already our main trading partner,? Londoño says. ?But this deal will also strengthen our ties with other important Latin American economies such as Mexico and Chile that already have their own agreements with the US.
?After Central America signed its agreement with the US it became much easier for us to do deals with countries like Costa Rica because they are used to negotiating and making concessions,? he adds.
But Londoño’s ambition extends beyond his near neighbours. ?All over the world globalization means building trading blocs among neighbouring countries,? he says. ?But we need to think about economic connections rather than just about our trading relationships in terms of the geography of our continent. Access to the US is the most important thing. We are closer to Florida than we are to Brazil. But it’s easier to get to Italy than it is to get to Buenos Aires. Trade is bringing the world closer together.?
With the returns he has produced for shareholders in the past few years, Londoño has earned the right to a bit of ambition.
