Equities: Searching for an Andean answer

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Rob Dwyer
Published on:

Local presence – and particularly local distribution – will be crucial to gaining market share in growing equity markets.

What’s the connection between ChileColombiaPeru and possibly Mexico? If you answered "Mila" you fell into a poorly concealed trap. A hint: the answer, which is not unrelated to the attempts to create Mila, a Latin American trading platform to rival the Bovespa, is ECM. So ... equities ... what’s the common thread?

If you guessed growth potential, award yourself partial credit. According to one recent research report the stock markets of Chile, Peru and Colombia are respectively worth 1.2 to 1.3 times GDP, 0.6 times GDP and 0.4 times GDP. So there’s plenty of room for growth, and with these economies currently enjoying sound macroeconomic management, the likelihood is that growth should come relatively soon.

Global financial Armageddon aside, Peruvian, and particularly Colombian, equity issuance should be a hotspot for the region within the next five years or so. Persio Arida, a partner of BTG Pactual and chairman of the asset management division, isn’t alone when he says that Colombia reminds him of Brazil in the recent past, and that the country has the most exciting capital markets outlook in the region, bar none.

But who will profit from this growth? And this is where we return to the original question. The answer is – as you would expect from markets with thin volumes and relatively self-contained buy sides – that locals have been strong in their respective ECM league tables.

In Chile, there is Celfin, IMTrust, Larrain Vial and Corpbanca Corredores. In Colombia, Bancolombia, Corredores Asociados, Grupo Aval, Bolsa y Renta. There were only four deals during the qualification period for this year’s Euromoney awards for excellence in Peru but two were led by locals: Interbank and BCP.

In Mexico, where the banking system is more dominated by foreign banks, Actinver Casa de Bolsa, Banorte and GBM Grupo Bursatil Mexicano are interspersed among the ‘Glocals’ (Citi, Santander and BBVA) and the more established international investment banks (Credit Suisse and Deutsche Bank).

This predicted growth in deals combined with the potential creation of a pan-Andean market in a region with such strong fundamentals is a very attractive prospect. But, as Latin Americans of all nationalities will tell you, you need to be local to win business here. It’s not just Brazilian companies that like to mandate Brazilian banks. The same is true everywhere on the continent. Local presence – and particularly local distribution – will be crucial to gaining market share.

Two months ago, Peruvian financial company Credicorp acted to integrate Banco de Crédito del Perú with Chilean firm IMTrust and Colombia’s Correval. At the time Bolsa y Renta’s co-head of investment banking told Euromoney that the firm was being visited daily by international and regional firms wanting to merge to get local presence. He wasn’t kidding. Within the month BTG announced that it was buying the firm.

When smaller independent banks say they are nimbler than the competition, this is a case in point. BTG Pactual could make the decision to buy Bolsa y Renta during one of the leadership team’s Sunday afternoon meetings (for example). After all the price ($51.9 million) is a relatively modest outlay: imagine the processes a global firm needs to go through to do the same deal. The risk assessments, the due diligence. How many committees would need to sign off on the deal, how much internal compliance, from technology and systems to HR and legal?

But the greater risk for the big firms is falling behind. The opportunities for wooing the locals (who would need to be wooed; local firms have valid fears of operational impotence if being subsumed into a big international bank) are finite.

So what do Peru, Colombia, Chile and possibly also Mexico have in common? They are rapidly vanishing windows of huge opportunity.