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A research service from the Financial Times

PREMIUM INVESTMENT RESEARCH

JUNE 2014

BRAZILS BOTCHED
DELIVERY
Our detailed research points to chronic delays
and cost overruns
CONSUMER: DEBT RESOURCES:
DIFFICULTIES
NEW FARMING
FRONTIERS
PDF distributed to richard.lapper@ft.com

FINANCE:
INFRASTRUCTURE:
PRIVATE EQUITY OLYMPIC
LOOKS TO MEXICO CONCERNS RISE

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JUNE 2014
3.0 RESOURCES AND TRADE

16

Farming opportunities are opening


up in Paraguay, where the government
is planning extensive infrastructure
investment

Of the 32 private equity


managers expressed
interest in Mexico

IN THIS REPORT:
1.0 MACRO VIEW

Brazils lost opportunity

13
Of the 32 private equity
managers expressed
interest in Colombia

2.0 CONSUMER

The shadow of debt lengthens

3.0 RESOURCES AND TRADE

Farmings new southern


cone frontiers 3.5 Cartes plans to
boosts investment

80.4%
Of Peruvians
save money*

90.4%

4.0 FINANCE

Private equity poised to ride out funding


challenge 4.5 Private equity heads to
the Pacific

5.0 INFRASTRUCTURE

Brazil underachieves on World Cup


projects 5.8 14 years in the making
Salvadors metro finally opens 5.10
Olympics concerns rise 5.12 2Q14
Infrastructure Project Tracker

s s

6.0 METRICS THAT MATTER


A research service from the Financial Times

16.6%
Of Chileans have
property insurance*

Of Brazilians have
a bank account*

24.9%
Of Argentines find it very
difficult to service their
debts*

*Based on a survey of 1,500 respondents in Brazil and 1,000 in each of the other countries
Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
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JUNE 2014

1.0

MACRO VIEW
Brazil World Cup failures are likely
to make the government even less
popular but we do not envisage any serious
political upheaval and still expect the
incumbent president to win
re-election
In March 2011, when we first researched Brazils execution of its World Cup spending
commitments, we found that too little has been spent and too little built, warned
against the dangers of complacency, and awarded the country a yellow card (LC Mar
31 2011, Infrastructure). Three years on, it is clear that these warnings have not been
heeded. As our research in this report shows, Brazil has underachieved, missing an
opportunity to catalyse the development of the much-needed transport infrastructure. A
fifth of the planned public transport schemes have not been built and others will be only
partially operational during the event. The vast majority of planned airport upgrades are
unfinished. Overall investment in World Cup related projects has increased by only R$1bn
($450m) to R$26.4bn since the first plans were announced in 2010, but public transport has
ended up with about half the funds that were intended for it, with chronic cost overruns on
stadiums and airports absorbing the lions share of funding (see chart 1).
The performance of some host cities has been shambolic. R$525m was budgeted for
urban transport improvements in the city of Porto Alegre but only R$16m has actually been
spent. Many of the projects are of limited use. None of the new BRT (bus rapid transport)
schemes operating in Belo Horizonte, for example, will connect to the airport and the
project focused on the centre of the city will not be fully operational in time for the World
Cup. Poor planning, complicated tendering processes, and difficulties surrounding land
expropriation have all played their part in slowing down projects. Wage pressures have
added to construction costs, contributing to overruns. We believe that all these factors will
continue to hinder the pace of infrastructure development once the tournament is over. It is
also possible that frustrations linked to urban transport will feed into the rumbling low

1. Underdelivering on urban transport


Projects

Investment

50

12
10
8

30
R$bn

No. of projects

40

50
20

40

10
0

11.6

6.2

Planned

Actual*

Planned

Actual*

Source: CGU, LatAm Confidential

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1.1

JUNE 2014

MACRO VIEW

Mexicos 1Q14 GDP growth of


only 1.8% compared to the
same period of last year, led
the government to revise
down its full year forecast to
2.7% from 3.9%

BRAZILS LOST
OPPORTUNITY
level strikes and anti-government protests that have been surfacing again in many Brazilian
cities in recent weeks.
However, we regard this as simply another lost opportunity rather than presaging any
broader political upheaval. Emergency security and logistic arrangements mean that the
tournament will very probably take place this month in reasonable order and without
any major mishap. Although economic confidence is at a low level (LC Mar 20 2014,
Consumer Survey) and the popularity of President Dilma Rousseff has been falling in
recent months (Update Alert, May 22 2014; Update Alert, Apr 7 2014), we still believe
that Ms Rousseff is the most likely winner of this years election, albeit after a much more
competitive second round than seemed likely a few months ago. Growth this year will be
less than 2%, but low unemployment, recent rises in the minimum wage and increases
in social benefits all favour poorer Brazilians and make them more likely to vote for Ms
Rousseff. In the longer term, in spite of all the disappointments, the slow urban transport
infrastructure build-up will continue to generate some opportunities for suppliers.

MEXICAN FRUSTRATION
Mexico too has been a frustrating market for investors. The countrys 1Q14 GDP growth
of only 1.8% compared to the same period of last year, led the government to revise down
its full year forecast to 2.7% from 3.9%. This dismal result reflects the continued weakness
of consumer spending, which we have highlighted previously. Our survey in this report
of consumer debt suggests that growing numbers of Mexicans are having difficulty
making debt payments, a result which could reflect the countrys relatively high levels
of informality and possible dependency on expensive informal credit markets (see chart
2). More positively, there are signs that in spite of delays Mexico is pressing ahead with
its energy reform (Update Alert, May 28 2014). Following internal elections in the centreright opposition National Action party, and the approval of electoral reforms including
the creation of a national electoral institute with greater authority at the state level a
majority of legislators seem to be ready to approve before the end of next month the
secondary legislation needed to make energy reform a reality.

PRIVATE OPPORTUNITIES
The other two pieces of research in the report focus on private equity and other alternative
investment opportunities. In what we intend to be an annual survey of private equity
prospects, we surveyed 32 private equity and venture capital fund managers and found
them to be relatively buoyant about prospects, in spite of recent challenges to fund raising
plans. Although 19 of the managers said the economic downturn in the region had had

2. Mexicos financial informality


% of respondents
LatAm

Mexico

80
70
60
50
% 40
30

76.3
64.0

59.0
46.9

20
10
0

Have a bank account

Have a credit card

Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

1.2

JUNE 2014

MACRO VIEW

Our interviewees were


particularly interested
in healthcare, with retail,
education, energy and
utilities, logistics, and oil
and gas also attracting
significant interest

BRAZILS LOST
OPPORTUNITY
either a significant or moderate negative impact, 23 of the sample were more optimistic
about Latin Americas prospects over the next 12 months (see chart 3). Ten managers said
they planned to increase investments in Mexico, six in Peru and four in Colombia, with a
number making their first forays into the Pacific Alliance markets. We were not surprised
by this interest in the Andes. Peru, whose economy is expected to grow by 5.3% this year,
has consistently shown up as the strongest of the six countries covered in our Consumer
Survey. Colombia, which is also expected to do reasonably well this year with projected
expansion of 4.6%, has been the second strongest performer in our surveys (LC Mar 20
2014, Consumer Survey).
From a sector point of view, our interviewees were particularly interested in
healthcare, with retail, education, energy and utilities, logistics, and oil and gas also
attracting significant interest. As we pointed out in our last report (LC Apr 17 2014,
Consumer), private healthcare has grown substantially in Latin America over the
past decade. Private equity houses played a significant part in bringing listed Brazilian
companies, such as Qualicorp (QUAL3:SAO), to the market.
Our final piece of research looks at the emergence of agribusiness opportunities in
two small but relatively open Southern Cone markets, Uruguay and Paraguay. Uruguayan
agriculture has changed radically in the last two decades, with its once dominant beef
industry now overshadowed by soyabeans production and forestry. Local groups, such as
the Montevideo-listed Union Agriculture Group, are playing an important role in driving
this trend. Paraguays soyabean industry is long established in the east of the country, but
under President Horacio Cartes, elected last year, the government is seeking to develop the
sparsely populated Paraguayan Chaco region in the north-west.

3. Private equity optimism


How do you feel about investment prospects in Latin America over the next 12 months?
25

No. of respondents

20
15
23

10
5
0

More optimistic

Less optimistic

The same

Pessimstic

Source: LatAm Confidential

Principal Richard Lapper Senior Researchers Amy Stillman, Luke McLeod-Roberts Researchers Cecilia Lanata Briones,
Lucinda Elliott, Denisse Lecerra Head of Production Heidi Wilson Junior Production Editor Caelin Robinson Senior
Designer Paramjit Virdee
Head of Sales UK/APAC Garrett MacCarthy Subscription Managers Michael De Coux, Wendy Clarke, Jose Rincon,
Dafydd Elias Account Manager Betty Encinales Product Manager David Griffith
FT Confidential: Chairman James Kynge Principal Richard Lapper Commercial Director Marc Thivessen
Email: research@latamconfidential.com Web: www.latamconfidential.com
LatAm Confidential is published monthly by The Financial Times Limited, Number One Southwark Bridge, London SE1 9HL The Financial Times Limited 2014.
The Client acknowledges that FT cannot provide the Client with any advice on dealing in specific investments and accordingly FT is not providing any such advice or
making any recommendation to the Client on the merits of buying or selling or otherwise dealing in particular investments.

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

JUNE 2014

2.0

CONSUMER

THE SHADOW OF DEBT


LENGTHENS

Our quarterly Consumer Survey has shown that growing numbers of Latin Americans
are facing difficulties in meeting debt payments. A relatively large numbers of our
Brazilian respondents are still increasing their use of consumer credit, however.

We found that Argentines and Mexicans made less use of the formal financial system
than other Latin Americans.

Outside Chile, the mortgage market remains underdeveloped, although it is growing


quite quickly in Brazil and Peru.

onsumer spending has been an important driver of Latin American growth for the last
decade. However, family budgets have come under growing strain and the burden of
indebtedness has been rising. We examined these dynamics in greater detail in our
survey of consumers in Argentina, Brazil, Chile, Colombia, Mexico and Peru, assessing
the extent to which respondents have experienced growing difficulty in servicing their
debts. Some of these dynamics are complicated because many poorer Latin Americans are
only starting to use the formal banking and financial system. In our most recent Consumer
Survey conducted between February 13 and March 10 we therefore asked our respondents
about how they used their bank accounts and the extent to which they borrowed money
either through mortgage or consumer loans, or through credit cards. We also surveyed them
about their insurance use.

THE GROWING DEBT BURDEN


Brazils consumer debt burden has been a focus of concern on financial markets for at least
the last three years. However, our quarterly surveys suggest that in four other countries
in the region people are also experiencing increasing difficulties in servicing their debts.
There is no question that many Brazilian families are overextended. The average for

1. Debt difficulties grow


How difficult is it for your household to pay its debts (for example loans, credit card, store card, mortgages)?*
3Q13

4Q13

1Q14

60
50
40
% 30
20
10
0

LatAm

Argentina

Brazil

Chile

Colombia

Mexico

Peru

*Percentage of respondents who answered difficult and very difficult


Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

2.1

JUNE 2014

CONSUMER

THE SHADOW OF
DEBT LENGTHENS

ACUTE DIFFICULTIES IN
ARGENTINA AND MEXICO
% of respondents who find it very difficult for
their households to pay its debts

LatAm

3Q13
10.5%
12.6%
12.5%
4Q13
12.7%
20.7%
15.6%
1Q14
13.6%
24.9%
18.7%

Argentina

Mexico

Latin America as a whole was slightly higher than for Brazil, however. In our survey of 1,500
Brazilians, 43.4% of respondents in 1Q14 said it was difficult for their household to pay its
debts, up from 40.2% in 3Q13 and 41.3% in 4Q13 (see chart 1).
Our data suggests that Argentines and Mexicans suffered much greater difficulties over
the same period. 57.1% of Argentines and 53% of Mexican respondents said they experienced
difficulty in paying debt in 1Q14, compared to 38.7% and 42.9% respectively in 3Q13. Chilean
families were also in slightly greater trouble than their Brazilian counterparts.
Moreover, while only about 10% of our Brazilian respondents said they found it very
difficult to pay debts, the number of Argentines facing more acute problems increased
from 12.6% in 3Q13 to 24.9% in 1Q14. Similarly, 18.7% of our Mexican sample said it was very
difficult to service their financial commitments in 1Q14, up from 12.5% in 3Q13.
Although fewer Brazilians report difficulties in paying debts than Argentines, we are
concerned that these difficulties could be growing. Our survey indicates that a larger number
of Brazilians is increasing their use of credit than elsewhere in the region. In 1Q14, 44.8%
of Brazilians increased their use of credit, compared to an average of 40.4% for LatAm as a
whole (see chart 2).
The rise in the perceived difficulty of Argentine and Mexican families is puzzling. Mexican
base rates are lower and bank spreads narrower than in Brazil, and the market for payroll
loans less evolved. Argentinas high inflation rate makes family budgeting complex, but
theoretically at least it should erode the value of local currency debt and make it less, rather
than more, of a problem.
One possible explanation for this is the very sharp economic slowdown in both countries
during 1H13 and the first few months of 2014. We have repeatedly noted the depth of the
malaise affecting consumer sentiment in Mexico. Argentinas economy has been especially
adversely affected by the decline in commodity prices. Our survey data shows consumer
sentiment in both countries has consistently been weaker than in any of the other four
markets that we survey (LC Mar 20 2014, Consumer Survey). In addition, however, we
suspect many of our Mexican and Argentine respondents are more dependent than their
counterparts elsewhere on informal markets than on formal bank or mortgage credit.
Only 48.9% of Argentines and 64% of Mexicans participating in our survey had bank
accounts, a lower rate of bancarisation than the average 76.3% for the six countries as a whole
(see chart 3). Mexicans made less use of credit cards. 53% of our sample did not have a credit
card and of those that did 63% had only one card (see chart 4). For the region as a whole,
47.6% of those with cards had one card. Mexicans were also more dependent on cash. 78.7%
of our sample used cash to pay utility bills, a higher percentage than in any other market

2. Brazilians still borrow more


How do you think that your households use of credit changed this month compared to the same month last year (for example loans, credit cards,
store cards, excluding mortgages)?
Increased

100

Unchanged

Decreased

I don't know

80
60
%
40
20
0

LatAm

Brazil
3Q13

LatAm

Brazil
4Q13

LatAm

Brazil
1Q14

Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

2.2

JUNE 2014

CONSUMER

The great bulk of consumer


borrowing in Latin America
finances the purchase of
consumer durables rather
than houses

THE SHADOW OF
DEBT LENGTHENS
apart from Colombia. In addition, we found that far fewer Mexicans bought property or
house contents insurance than the Latin American average. 2.6% of Mexicans had contents
insurance compared to a 5% average for the region. 4.5% of our Mexican sample had bought
property insurance compared to an average of 10.8% for the region as a whole (see chart 5).

MORTGAGE FINANCE
The great bulk of consumer borrowing in Latin America finances the purchase of consumer
durables rather than houses. Outside Chile where mortgage lending amounts to about
20% of GDP mortgage finance remains underdeveloped (see chart 6). This implies that
Latin Americans are less able to build up assets than their equivalents in other emerging

3. Brazil leads bancarisation


Have a bank account
100

9.6

23.7

% of respondents

80

Do not have a bank account

29.3

22.4

36.0

29.5

51.7

60
40

70.7

77.6

64.0

70.5

48.3

20

LatAm

Argentina

Bank account duration

90.4

76.3

Brazil

Chile

5 years and less

Colombia

Mexico

Peru

More than 5 years

Source: LatAm Confidential

4. Mexicans lag in card use


Have credit cards

Do not have credit cards

100

% of respondents

80

41.0

42.7

59.0

57.3

LatAm

Argentina

32.8

37.3

35.9

48.7

53.1

51.3

46.9

Colombia

Mexico

60
40

67.2

62.7

20

Brazil

Chile

Peru

No. of cards

64.1

4 or more

Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

2.3

JUNE 2014

CONSUMER

64.2%
Of Chileans who owned their homes
had borrowed money from a bank to
make the acquisition

THE SHADOW OF
DEBT LENGTHENS
markets where mortgage finance is more developed. It also means that the financial
implications of any debt bubble are less damaging. In our sample, about a third of our
respondents owned their houses and a third of those borrowed money from banks or
developers in order to buy.
Predictably, Chile was an outlier. 64.2% of those who owned their homes had borrowed
money from a bank to make the acquisition. Official figures show a steady rise in mortgage
finance over the last decade in the region, with the increase particularly strong in Brazil,
where the Minha Casa Minha Vida housing programme has made subsidised finance available
to low-income families. In 2013, mortgage debt accounted for 7.1% of GDP in Brazil (up from
1.6% in 2007) and 9.6% in Mexico (up from 7.3% in 2004). It is also growing very quickly in
Peru, reaching 5.4% in 2013, up from 1.9% in 2004.
Our survey suggests that a substantial number of Latin Americans still choose to build
their houses piecemeal, buying materials when they are able to afford them and adding
rooms whenever possible. 20.9% of our sample said they had bought their houses and built
through time, with that share rising to 23.9% in Brazil and over 30% in Peru (see chart 7).

PERU STANDS OUT


Perus economy has outperformed every one of the sizeable Latin American economies
in recent years, and with growth expected to top 5%, it should again do so this year.

5. Mexicans less insured


% of respondents who have insurance for the following
House/property insurance

House contents insurance

20

15

% 10
16.6

16.3
5

13.1

10.8

9.8

8.8

5.0
0

LatAm

6.0

4.1
Argentina

Brazil

Chile

11.3

9.4

Colombia

4.5

9.9

2.6

Mexico

Peru

Source: LatAm Confidential

6. Chile leads on mortgage finance


Mortgage credit as % of GDP
Argentina

Brazil

Chile

Colombia

Mexico

Peru

20

15

% 10

2008

2009

2010

2011

2012

2013

Source: Thomson Reuters Datastream

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
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JUNE 2014

2.4

CONSUMER

PERU LEADS SAVINGS TABLE


% of respondents who save money
LATAM

63.1%

44.8%
ARGENTINA
BRAZIL

CHILE

COLOMBIA

64.3%
57.1%
69.1%

THE SHADOW OF
DEBT LENGTHENS
Our data suggests that the consumer spending, which has been one of the main drivers of
the countrys expansion, remains relatively strong and fairly unencumbered by any debt
overhang. Our Peruvian respondents said they were making less use of credit in 1Q14 than
in either 3Q13 or 4Q13. However, in 1Q14 only 24.4% of Peruvians experienced difficulty in
paying their debts, the same as in 3Q13 and slightly higher than the 23.8% in 4Q13, but a
lower percentage than from any of the other five countries surveyed.
We also found that Peruvians were more likely to save than fellow Latin Americans.
On average, 63.1% of Latin Americans save, nearly half by building up current or deposit
accounts. However, 80.4% of our Peruvian sample said they saved money. Our Peruvian
respondents showed a higher than average propensity to hold savings in foreign currency
(almost certainly US dollars), land, cars or property bought for rent (see chart 8). The
conclusion reinforces our sense gained from previous surveys that Peruvians tend to be
more focused on their families future security and well-being than their counterparts
elsewhere. We have noted more than once before that Peruvians attach greater importance
to spending on education, healthcare and housing (LC Apr 17 2014, Consumer; LC 23 Jan
2014, Consumer).
We also detected signs of relatively rapid financial formalisation by Peruvians. 13.1% of our
sample had opened a bank account within the last six months, 27.9% within the last year and
42.1% within the last two years. These were all notably higher percentages than in the other
five markets.

7. The self build trend


% of respondents who bought land and built their house over time
35

MEXICO

PERU

30

61.3%

25
20

80.4%

30.4

15
10

20.9

23.9

20.4

19.8

5
0

LatAm

Argentina

Brazil

9.2

8.9

Chile

Colombia

Mexico

Peru

Source: LatAm Confidential

8. Perus saving patterns


Main savings mechanisms
LatAm

Peru

In a bank account
(savings/current account)
In a special savings account
I treasure domestic currency
I buy foreign currency
I buy properties to rent
I buy land
0

10

15
20
% of respondents

25

30

35

Source: LatAm Confidential

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it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
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JUNE 2014

3.0

RESOURCES AND TRADE

FARMINGS NEW SOUTHERN


CONE FRONTIERS
3.5 CARTES PLANS TO
BOOSTS INVESTMENT
IN PARAGUAY

It has become increasingly difficult for international investors to access agribusiness


opportunities in Brazil and Argentina, either because of land ownership limitations
or punitive tax and trade restrictions. We examined opportunities in two smaller but
more open Southern Cone economies that enjoy similar comparative advantages as
food producers: Uruguay and Paraguay.

We visited both countries during April and May in order to assess local agribusiness
trends. We found that consolidation in Uruguay, prompted in part by the withdrawal
of stretched Argentine investors, has created opportunities for a number of local
groups. Some are beginning to expand into Paraguay, where the government is
seeking to open up swathes of uncultivated land and is planning extensive investment
in infrastructure that should, in the longer term, make the country more attractive to
international business.

ruguay began its push into forestry in the late 1980s. With 1m hectares (ha) of
timberland, now boasts a sizeable paper and pulp industry, with revenues from wood,
chips and pulp and paper generating about 10% of total incomes. The drive into
soyabeans came in the late 1990s, with farmers beginning to convert large quantities
of relatively cheap pastoral land along the Uruguay River. In the early 2000s, Argentine
agricultural companies such as Grupo Los Grobo made investments in cheaper tracts
of arable land along Uruguays west coast. Grown on just 12,000 ha in 2000, soyabeans
covered 1.5m ha by 2013. Output has increased at an even faster pace, rising from 27,600
tonnes in the 2000/01 harvest to an estimated 3.67m tonnes by the end of the current
harvest (see chart 1). Soyabeans generated 19% of Uruguays total export revenue in 2013.
Reflecting this development, land prices in Uruguay have increased sevenfold over the last
two decades, rising from an average of less than $500/ha in 1996 to more than $3,500/ha

Uruguayan soyabean production soars


Total production
3.0

1,500

2.5

1,200

2.0

900

1.5

600

1.0

300

0.5

2000/
2001

2001/
2002

2002/
2003

2003/
2004

2004/
2005

2005/
2006

2006/
2007

2007/
2008

2008/
2009

2009/
2010

2010/
2011

2011/
2012

2012/ 2013/
2013 2014E

Tonnes (m)

Hectares (000s)

Total area cultivated


1,800

0.0

Sources: MGAP, DIEA

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3.1

JUNE 2014

RESOURCES
AND TRADE

$170m

Amount
for which
Argentinas El Tejar sold out its
Uruguayan interests to UAG in
February, giving it control over
67,000 additional ha of land in
Uruguay

FARMINGS NEW SOUTHERN


CONE FRONTIERS
in 2013 (see chart 2).
Paraguayan agribusiness is longer established, with the 350,000 individuals forming a
strong Brazilian or Brasiguayo farming community in the east of the country producing the
bulk of the most recent harvest of 8.5m tonnes. However, the election of a business-friendly
government last year has opened up new possibilities in the less developed lands of the
Paraguayan Chaco. We visited both countries over the last few weeks, interviewed farmers,
agribusiness companies, consultants and government ministers. We believe the new
agribusiness cluster emerging in Paraguay and Uruguay represent a potential opportunity
for investors.

URUGUAYS AGRIBUSINESS ELITE


Although Uruguays forestry industry is dominated by foreign players including
Weyerhaeuser (WY:NYSE) of the US and UPM (UPM1V:HEX) of Finland (see map), we noted
the emergence of a number of Uruguayan groups in the soyabean and grains sector. Led by
the Montevideo-listed Union Agriculture Group (UAG), these businesses have expanded
relatively quickly in recent years, buying up smaller farms and more recently picking up
assets from regional and international investors. In February, Argentinas El Tejar sold out
its Uruguayan interests to UAG for $170m, giving it control over 67,000 additional ha of
land in Uruguay (32,000 ha owned vs 35,000 ha leased). El Tejar is one of the worlds largest
farm companies backed by London-based hedge fund Altima Partners, and private equity
firm Capital Group (LCG:LSE). Adecoagro (AGRO:NYSE), one of the largest owners of

2. Southern Cone land prices surge


Average annual land price per hectare
Argentina

Brazil

Uruguay

10
8

$000s

6
4
2
0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013**

YoY change
Argentina

Brazil

Uruguay

60
50
40
30
%

20
10
0
-10
-20
-30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

*Argentinas 2012-2013 prices are for the Province of Buenos Aires. Brazils 2012 price is for 1H12, **Brazils 2013 price is an estimate
Sources: DIEA, FGF-IBRE, Fischer & Schickendant , IGP-DI, OPYPA (Oficina de Programacin y Poltica Agropecuaria), World Bank

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Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

JUNE 2014

3.2

RESOURCES
AND TRADE

FARMINGS NEW SOUTHERN


CONE FRONTIERS

Adecoagro is another
investor to have exited
recently, selling two of the
three farms it initially bought
in Uruguay

productive farmland in South America, is another investor to have exited recently, selling
two of the three farms it initially bought in Uruguay. New Zealand Farming Systems, the
South American dairy unit of Singapore-based Olam International (O32:SES), has also
made several sales within their Uruguay land portfolio. In April, the company sold 7,771 ha
to local interests for $53.7m. Since 2010, it had bought more than 28,000 ha of land in the
states of Florida, Rio Negro and Rocha.
As well as UAG, we have identified eight other local participants who have begun to
engage in large-scale intensive agriculture. These groups are adding value to land by
increasing productivity on existing farms, or by converting uncultivated pastoral land to
produce a variety of crops including wheat, maize, and rice, as well as soyabeans. Some
are majority owners of the land they cultivate and closely allied with international players.
Others use a leasing model, where they rent land from smaller producers and sell on what
is cultivated to national and international trading groups for export. Today theres a

TACUAREMB (2, 4, 6, 10, 11, 17, 18, 19)


CERRO LARGO (2, 3, 6, 7, 10, 15, 19)

PAYSANDU (11, 18)


RIO NEGRO (2, 10, 11, 13, 17, 18)

TREINTA Y TRES
(4, 7, 8, 11, 15, 19)

DURAZNO (1, 5, 11, 15, 17)

SORIANO
(2, 4, 7, 12-14, 17, 18)

FLORES (2, 11, 13)

PORT NUEVA PALMIRA


FLORIDA (11, 4, 7, 17)
COLONIA (7, 12, 13, 14, 17)

LAVALLEJA
(7, 14-17)

ROCHA
(7, 8, 9, 14-16)

CANELONES (3)
MONTEVIDEO

Agriculture

Dairy

Corn

Grains

Forestry

Soyabeans

Wheat

Meat

Rice

Olives

MAP NO.

SALTO (11)

NAME

Adecoagro

Brazilian

Agronegocios
del Plata*

Uruguayan/
Argentine

100

AGRA

Uruguayan

20

Barraca Jorge
Walter Erro

Uruguayan

94

Calix Agro

French

11

Ernesto Correa

Brazilian**

100

Fadisol

Uruguayan

83

Forestal Atlntico
Sur

Chilean

45

Galpern Group

Uruguayan

15

10

US

18

11

GMO Renewable
Resources
Hillock Capital
Management

Argentine

20

12

Kilafen

Uruguayan

30

13

Montes del Plata

International

14
15

NZ Farming
Systems
RMK Timberland
Group

16

WHAT THEY PRODUCE

NATIONALITY

45

250

Singapore

20

US

38

Sieraas Calmas^

Spanish

30

17

Union Agricultural
Group

Uruguayan

181

18

UPM

Finnish

200

19

Weyerhaeuser

US

138

Global Forrest
Partners^^
Manuel Santos
Uribelarrea

US

140

ACROSS THE COUNTRY

RIVERA (10, 13, 19)

HECTARES
(000S)

Uruguays agriculture groups consolidate

Argentine

55

*Part of Los Grobo, Argentina. **Businessman (single investor). ^Part of Ense. ^^Includes Forestal El Arriero (26,000 hectares), Forestal Oro Verde (50,000), Forestal Tekoayhu (50,000), Forestal Tierra Verde (14,000 )
Sources: Company websites, Uruguay Ministry of Agricluture, El Observador

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3.3

JUNE 2014

RESOURCES
AND TRADE

FARMINGS NEW SOUTHERN


CONE FRONTIERS
lot of local expertise in the mix, especially when compared to ten years ago, said Pedro
Arbeletche, an agronomist at Uruguays Public University.

85%
Of UAGs land is dedicated to crop
cultivation, but the group also
manages livestock and dairy units

UAG
Starting with a small blueberry farm in the west of Uruguay, UAGs land portfolio has
multiplied from a modest 8,000 ha to the 181,000 ha they currently hold after the El Tejar
takeover, 31,000 ha of which is leased. UAG was founded in 2007 by Montevideo-born
Juan Sartori, now executive chairman, who, having worked in the financial sector in
Europe, returned to his home country to focus on buying enough land to acquire the scale
needed to achieve efficiencies in the agriculture sector. 85% of UAGs land is dedicated
to crop cultivation, but the group also manages livestock and dairy units, selling to food
companies such as Conaprole, Marfrig (MRFG3:SAO), and Saman, mostly for the export
market. In May last year, the company listed on the Uruguayan stock exchange for $420m.
UAGs main priority is integrating the land they have acquired in order to boost
productivity. Weve had five years of very rapid growth, now is the time to consolidate what
we own, said Romualdo Varela, the chief executive, in an interview with LatAm Confidential.
Although positive about Paraguay, there are no solid plans to move into that market yet. The
Uruguayan company for now is sticking to what it knows the local market.

ADP
Agronegocios del Plata (better known by its acronym ADP) was established by the Guigou
family in 2002. Unlike UAG, the group uses a leasing model, cultivating 75,000 ha of land,
50,000 of which it leases from roughly 100 different smaller producers. The reason why
cultivation size varies is because some of the farms produce two crops in a single year,
rotating between wheat in the South American winter and soyabeans in summer. 43,000
ha were dedicated to soyabeans during the most recent harvest, 58% of their land portfolio.
Since 2004, ADP has partnered with the Grobocopatel family, now Grupo Los Grobo, a firm
based in Argentina and run by Gustavo Grobocopatel, known locally as The King of Soya.
Los Grobo is the majority shareholder of ADP and also adopts a leasing model across the
rest of the Mercosur region. The company does not own a single shovel or acre, instead it
leases machinery and land from others. Its focus today is on increasing the productivity
of existing farms rather than buying or leasing more land. Economic viability is about
large scale cultivation of soyabeans, said Marcos Guigou, ADPs president, in an interview
with El Pas, the Uruguayan daily newspaper. This year ADP will produce 200,000 tonnes of
soyabeans for export.

BARRACA ERRO
Barraca Jorge Walter Erro, is the third largest exporter of grains in Uruguay after Cargill
and Cereoil Uruguay. It introduced soyabeans to Uruguay in 2001. It produced 14.5% of
Uruguays overall grain exports in 2013. The company which was set up to transport
grains in the late 1940s also operates as Villa Trigo. Like ADP it has focused on increasing
productivity on existing land, partly through the development of new seed varieties. It
has an agreement with Donmario Seeds of Argentina, which specialises in genetically
modified varieties. In the early 2000s, it cooperated with ADP on some projects, but
now works separately, cultivating its own land and partnering with local farmers and
cooperatives. Barraca Erro is present in 18 of Uruguays 19 states, across 94,000 ha.

FADISOL AND OTHERS


Fadisol is a privately owned wheat and soyabean trader, based in the western state of Colonia.
Like Barranca Erro, it partners with local farmers rather than growing on its own or leased
land. The group started to farm in Paraguay in 2009 and has funded and managed several
projects there.
Galpern Group that purchased 1,769 ha of land from New Zealand Farming Systems
this year is a holding company established in Uruguay in the early 2000s with various
Uruguayan and Argentine interests. The agricultural arm, known locally as Galfarm,
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3.4

JUNE 2014

RESOURCES
AND TRADE

HOW LAND PRICES HAVE


INCEASED IN URUGUAY

Rate of land appreciation (%)


20.1
12.0

1.8

-3.9
1970- 1980- 1990- 20001979 1989 1999 2009
Sources: DIEA, OPYPA, World Bank

FARMINGS NEW SOUTHERN


CONE FRONTIERS
currently has 15,000 ha under cultivation in Uruguay. 52% of the Galpern Group belongs to
Paycueros, an Uruguayan leather manufacturer based in the Paysand that exports mainly to
China. Other shareholders include Ernesto Galpern head of Mercado Libre in Uruguay the
number one e-commerce site and E-bays Latin America partner.
Nalmer, based in Young in the northern state of Ro Negro purchased land from New
Zealand Farming Systems in the same state where it is based.
Agra Corporation is a partnership between Marcos Marn, a Peruvian-Uruguayan
businessman, and Jorge Francomano, an Argentine agronomist. The group manages 20,000 ha
of land, on which it produces soyabeans for export. Mr Francomano previously managed over
40,000 ha in Uruguay for the Argentine farming group, MSU Agro. Their company is looking
for opportunities to expand and is watching potential withdrawals by Argentine groups. I
wouldnt say theres been an outright mass exodus of Argentines from the market, but theres
certainly stuff for sale with room to negotiate, said Mr Marn, the companys chief executive.
Hillock Capital Management is a farm management company based in Montevideo. It
started life in Argentina as a commodities broker, but expanded into Uruguay in the early
2000s. Backed by wealthy individuals and institutions, the group has bought more than 20,000
ha in nine different states. It grows soyabeans and other crops on 12,000 ha. Theres still a lot of
opportunities to convert arable land for crop cultivation, said Martn Otero, its chief executive.

GOVERNMENT POLICY
Government policies have been generally supportive, although there is some frustration
about the poor quality of infrastructure and the slow pace of improvement. On the plus
side, Uruguays fiscal and legal framework is more transparent and predictable than that of
Argentina and Brazil. There is a flat 25% income tax, and tax breaks on farm machinery and
supplies. No sales tax is levied on farm products with the exception of a 1% municipal sales
tax on livestock. For smaller farms with annual revenues of less than $238,000, tax is capped
at $5,125 per year. In addition, government agricultural policies are arguably conducive to
sustainable development. In particular, the government has been keen to promote measures
limiting over farming: a soil protection plan has been introduced since 2010 1.5m ha
are currently protected and crop rotation became mandatory in 2013. Uruguays official
agricultural research unit, Inia, established in 1914, is considered a global innovator in
developing new seed varieties and conservation techniques. The government is also keen
to ensure agribusiness complies with food sanitation laws, allowing the industry less
complicated access to overseas markets. However, Uruguays transport network is seriously
deficient and agribusinesses complain that energy costs are expensive. Although logistics
are easier than in Argentina, Brazil and Paraguay, farmers criticise that it still typically
takes 30 days between harvesting and loading grain on ships. Marcos Guigou told a recent
interviewer that energy and transport costs in Uruguay are among the highest in the world.
Infrastructure problems are an obstacle.
Ports are a priority: plans are afoot to bring into operation two new deep sea ports at La
Coronilla, in Rocha state, and at Fray Bentos in the west of the country, supplementing three
existing facilities at Colonia, Montevideo and Nueva Palmira. But according to the ministry
of transport, the port of Rocha will not be fully operational in 2025. Railways have suffered
from decades of underinvestment. Over half of the countrys rail system has been abandoned
since nationalisation in 1952. And roads are heavily congested. A project to revive nearly
1,500 km of railway is in place, but progress has been sluggish. A $74.8m contract for Focem
Uno, linking Montevideo with Rivera near the Brazilian border, was awarded to the National
Railway Corporation (CFU) in November 2011, but relatively little has so far been done. The
winner of a second project, Focem Dos, to rebuild the west coast railway line that runs from
Fray Bentos to Salto Grande in Argentina, will be announced in July this year. Carlos Len,
head of infrastructure for the national railway association (AFE) told LatAm Confidential
that the China Railway Construction Corporation is a potential bidder. Progress has been
equally slow in improving Uruguays network of navigable rivers, although ministers claim
that investments have been made. Given these failures, Fadisol plans to build a port terminal
on the Tacuar River that borders Brazil, in the eastern state of Cerro Largo.
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3.5

JUNE 2014

RESOURCES
AND TRADE

FARMINGS NEW SOUTHERN


CONE FRONTIERS
MOVING TO PARAGUAY

With opportunities for land


acquisition limited at home,
a number of Uruguayanbased agribusiness groups
have begun to expand into
Paraguay

With opportunities for land acquisition limited at home, a number of Uruguayan-based


agribusiness groups have begun to expand into Paraguay, focusing in particular in the
Paraguayan part of the Chaco region. The election in 2013 of the business friendly President
Horacio Cartes should help support this trend.
Uruguayans have bought nearly 1.5m ha in the northern Chaco region, according to Jorge
Gattini, Paraguays agriculture minister. We have identified a number of Uruguayan groups
that have moved into Paraguay. Agra Corporation, which manages 20,000 ha of agricultural
land in Uruguay,also currently holds 10,000 ha in Paraguays western region, and UAGs Juan
Sartori signalled he is considering some of Paraguays investment options. Everdem (Estudio
3000 S.A), which began buying land in Paraguay in 1999, now raises cattle on 8,000 ha, and is
planning to start cultivating grain. For the first time we have a government with a clear plan
for our sector and transport infrastructure is a priority; the reconstruction of the Transchaco
highway that runs [the 460km] from Asuncin to the Filadelfia [the state capital of the Gran
Chaco] has already been approved, said Rodrigo Artagaveyta, director of Everdem. The road
is one of the 14 road projects that will be auctioned to the private sector as PPPs in 2014.
Although the Chaco is predominantly cattle-raising country (see map), the land is fertile
with roughly 80 particles per million (ppm) of phosphorous, compared to an average of
3ppm in Uruguay and Paraguays Grain Export Association (Capeco), with researchers in
the US, is exploring new heat resistant varieties and is carrying out tests in the northern
state of Alto Paraguay. However, much of this will take time. The association reckons it
could be eight years before commercial scale cultivation can begin. A long-term irrigation
plan to redirect fresh water from the Paraguay River to the drier salt water Alto Paraguay
region close to the Brazilian and Bolivian border is also in place, but is unlikely to be fully
operational before 2030.

CARTES PLANS TO BOOSTS INVESTMENT


President Horacio Cartes, who
took office last August, has been
keen to attract private capital to
the countrys infrastructure and
resource-based industries, in order
to improve access to international
markets. In an interview with
LatAm Confidential, he outlined his
infrastructure plans for the country
and signalled the governments support for the agriculture industry.
Paraguay is famed for having a
simple and low tax rate of 10% across
all sectors, with an addition 10%
VAT. The cost of production vs other
LatAm countries is also low primarily due to the countrys cheap and
abundant electricity supply, young
population (74% of Paraguayans
are under 34) and relatively efficient
export system. Mr Cartes claims that
low production costs give Paraguay
a competitive edge and wants to take
full advantage. We want to industrialise the country further. Paraguay is
one of the lowest-cost producers in

the region and this has to be maintained, he said.


Paraguay recently eliminated the
10% export tax on soyabeans, replacing it with a value-added tax of 5% on
the sale of all agricultural products
as of January 1 2014. In addition, if an
agricultural product is processed, a
2.5% rebate is offered to exporters,
providing an incentive for businesses
to locate giving a further incentive
to treat raw materials in Paraguay
itself. Agribusiness is an established
system in Paraguay. We are more
competitive than the US in terms
of soyabean production at farm
level, but the transport and logistics
system in place today lets us down,
said Jorge Gattini, the agriculture
minister.
The government is already going
ahead with its plans to invest in its
transport infrastructure, following the approval in October of a
new law on PPP. In April, the Korean construction company Ilsung

was awarded the PPP to rebuild the


Route 8 highway that runs from
Caazap to Yuty in the south-east.
Paraguays public works and communications ministry plans to auction a further 14 transport projects
this year totalling $500m, increasing
to over $1bn in 2015. Like Uruguay,
making use of the river network is also
high on the governments agenda.
The Paraguay River is where we
breathe commercially, it needs to
be more navigable, Mr Cartes told
LatAm Confidential. With 84% of
total soyabean exports transported
by river, the government plans to
dredge the Paraguay River to increase
capacity and reduce shipping costs.
A bidding date for the PPP project
is yet to be confirmed. The river is
navigable up through Asuncin for
vessels of up to 11 metres draught, but
droughts occasionally cause problems. In 2012 importers and exporters
lost roughly $250m in potential revenues due to interruptions in traffic.

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Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

3.6

JUNE 2014

RESOURCES
AND TRADE

FARMINGS NEW SOUTHERN


CONE FRONTIERS
Theres still a lot of land. Within the next ten years Id estimate up to 300,000 ha could be
cultivated on the western side, said Jos Berea, head of Capeco. Alto Paraguay is what Alto
Paran was twenty years ago. The eastern state of Alto Paran, whose capital Ciudad del
Este borders Brazil, is where the majority of Brazilian soyabean producers are based today.
Sugarcane plantations have also been introduced in Alto Paraguay since 2009 through smallscale farming and local cooperatives and with successful results. Paraguay exported organic
sugar to 17 different countries in 2013.
On the eastern border with Brazil, business continues to boom. The agriculture minister
estimates that farmers of Brazilian origin cultivate more than 85% of the 3m ha of land
currently under soyabeans. However Paraguays relationship with its irmo mais velho (big
brother) to the east continues to be an occasional source of tension.

Paraguays uncultivated Chaco region looks set for investment

1
2

Yrenda water reserve


Paraguay east

Project: Aquaduct in Central Chaco


Type: Water sanitation project to
provide water for the
region from the River Paraguay
Work started: 2013

Tima
n

Project: Southern Line,


Filadelfia
Type: Road refurbishment
for accesss roads in
central Chaco region
Work complete: Oct 2014

Mo

nte

Lin

Arid, less rainfall


but has large water
reserve, the Yrenda
water reserve, in the
state of Gran Chaco.
Borders Argentina
and Bolivia
Cattle, exploring
soyabean
cultivation, sugar

2 3
FILADELFIA

Aqidaban

do

Arid, less rainfall but has


large water reserve, the
Yrenda water reserve, in the
state of Gran Chaco. Borders
Argentina and Bolivia

CHACO
CLIMATE

Mainly cattle

AGRO PROODUCTION
Mainly Uruguayan and
Paraguayan producers

WHICH AGRO
PRODUCERS
ARE BASED THERE?

AGRO PROODUCTION

EAST
Evenly distributed
rainfall, average
annual rainfall
1,500mm compared
to 800mm in the
Chaco

Soybean, rice,
corn, wheat

97% of total

Apa

Ypan

EAST
More rainfall, about
1mm/km travelling
east. Fertile border
with Brazil

Jejui-Guazu

Parag

WEST

CLIMATE

SHARE OF
POPULATION

3% of total

1
Verde

PARAGUAY

uay

Chaco east

Project: Route 9 Transchaco highway


Type: Road refurbishment
Bidding date: 2014

Project: Route 3,
connection with route 5
Type: Road refurbishment
Bidding date: 2014

WEST

Chaco west

ASUNCIN
Tebicuary

Paran

MAIN INFRASTUCTURE PROJECTS:

Cattle, exploring
soyabean and organic
sugar cultivation in
the north
Uruguayans and
internationals
exploring

Sources: Ministry of Communication and Public Works, IIRSA, LatAm Confidential

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JUNE 2014

4.0

FINANCE

14

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES

Our research points to a slowdown in fundraising for private equity in Latin


America, with volumes unlikely to exceed $9bn in 2014, also below the last
fundraising cycle in 2011. However, we expect the strong deal flow to continue,
reaching at least $9bn in 2014.

Mexico and Peru are seeing increased private equity activity, while Colombia is
attracting interest in oil and gas. This year US buyout firms KKR & Co and Bain Capital
invested in Brazil for the first time.

Consumer-oriented sectors and infrastructure-related developments in Latin America


continue to be at the centre of private equity interest. Healthcare was considered the
most promising sector for new investments (15.6% of the sample), followed by
consumer retail (10.4%). Oil and gas, energy and logistics also performed strongly,
with 9.4% each. Findings are based on our survey of 32 private equity funds.

Out of 32 fund managers plan to


invest between $20m-100m in Latin
America in 2014

o far 2014 has been a challenging year for private equity funds in Latin America.
Volatility across some of the regions biggest markets has hurt fundraising, with
international investors taking a more cautious approach to emerging markets. Big
buyout firms in the region are entering a new cycle of capital raising, but we estimate
that funds will not surpass $9bn this year, and could be lower. This would be higher than in
2013 when $5.5bn was raised, but lower than the 2011 fundraising peak when volumes reached
$10.3bn (see chart 1).
Our assessment is based on interviews with 32 private equity and venture capital fund
managers, conducted between March 25 and April 30. Among this number were ten
international funds, 11 funds headquartered in Brazil, eight in Mexico, two in Peru and one
in Chile. We asked interviewees about opportunities in Argentina, Brazil, Chile, Colombia,
Mexico and Peru. These markets accounted for 97% of private equity investments in Latin
America last year, according to the Latin American Venture Capital Association (Lavca).

1. The gap widens


Fundraising

Investment

12
10

$bn

8
6
4
2
0

10.3
8.1

6.4
4.6

2008

3.6

7.2

6.5

8.9

7.9
5.6

9.0

9.0

5.5

3.3

2009

2010

2011

2012

2013

2014E

Sources: Lavca, LatAm Confidential

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4.1

JUNE 2014

FINANCE

Our research suggests that


investment will continue
rising to above $9bn in 2014

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES
Just under 60% of respondents in our survey said that the macroeconomic environment has
negatively affected their activities in the region. 18% of the managers we enquired claimed
the impact had been significantly negative.
Its more of a challenge to raise emerging market funds today than it was three years
ago, said Jim McGuigan of Capital Group, which is looking to raise a seventh fund dedicated
to emerging markets in 2015. I think [investors] are being much more selective and may be
reducing commitments.
Such concerns have led some private equity firms like GP Investments (GPIV33:SAO) to
postpone plans for a new fund. We havent started fundraising yet because its not the best
time to be talking about Brazil, noted GP Investments partner Antonio Bonchristiano.
According to Mr Bonchristiano, the firm is waiting a few more months until it has more
visibility on the economic outlook to launch its next $1bn to $1.5bn Brazil-dedicated fund.
As such, funds entering a new fundraising cycle could face difficulties. LatAm
Confidential understands that Brazils Gvea Investimentos is looking to raise more than
$1bn, and Advent International is seeking $2bn. Ptria Investimentos hopes to raise between
$1.5bn to $2bn, and BTG Pactual (BPAC3:SAO) is planning to capture $1bn in capital. Carlyle
Group (CG:Nasdaq) will also raise $1bn for a South America-focused fund. Likewise, a
number of Mexican and Peruvian-focused funds that we spoke to said they planned to raise
money. Mexicos Wamex is looking to raise $250m for a third fund this year (see chart 2).
Private equity exits have also been affected by volatility on capital markets. Lavca
estimates that revenue generated by exits in the region fell 2.6% last year, to $3.7bn. Latin
America had no initial public offerings (IPOs) in 1Q14, while issues were down 61% YoY,
according to Dealogic, the capital markets data provider. Four planned IPOs two from
Brazil and two from Mexico were withdrawn or postponed during the quarter. Brazilian
beef producer JBS (JBSS3:SAO) has announced plans to sell shares of its poultry and
processed food unit, making it the first IPO in Brazil all year.
Private equity investment has proven more resilient, however. Our research suggests that
investment will continue rising to above $9bn in 2014. We attribute this in part to the growth
of funds in the Andean region and Mexico, which have until now been relatively underpenetrated by private equity.
Additionally, Brazil, which accounts for about 68% of deal volume in Latin America,
is benefiting from new activity by big buyout firms. US private equity firm KKR & Co
(KKR:NYSE) announced its first deal in Brazil in April, purchasing a controlling stake of
data-centre firm Aceco Ti. In March, US-based Bain Capital signed an agreement to acquire
Brazilian health insurance provider Intermdica for over $850m. And the UKs Apax
Partners, which opened offices in Brazil in November last year, is looking for investment

2. The 2014 fundrasing outlook


Fundraising in 2014 by origin of funds

How much funds will you raise in 2014?


Brazil

Brazil

Less than $20m

International

$20m-100m

Peru

$101m-500m

Chile 0
0

Peru

No plans to
raise funds

Mexico

Mexico

Over $500m
1

3
4
5
6
No. of respondents

3
2
No. of respondents

Source: LatAm Confidential

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4.2

JUNE 2014

FINANCE

Brazil, which accounts for


about 68% of deal volume in
Latin America, is benefiting
from new activity by big
buyout firms

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES
opportunities in the country for a $7.5bn global fund that is already one-third committed.
In our survey, fund managers investment outlook was positive, reflecting the continued
strength of the deal flow. Almost 72% of respondents said they are more optimistic about
investment opportunities in Latin America over the next 12 months compared to a year ago.
Notably, the majority of our sample was focused on the mid-market, reflecting the trend for
smaller deals in Latin America. 43.8% of respondents planned to invest between $20m and
$100m in the region in 2014, while 34.4% expected to deploy between $101m and $500m.
About 60% of respondents said they expected competition to remain unchanged over
the next 12 months compared to the previous 12 months, while just 21.9% expected more
competition and 15.6% thought thered be less competition (see chart 3). This minority
of respondents believed prices could fall. As Patrick Ledoux, a partner at London-based
Actis Capital, told LatAm Confidential, We see more opportunities in Latin America than
a year ago: companies valuations are getting cheaper and there is less competition from
opportunistic investors.
Consumer-oriented sectors such as healthcare, education and retail continue to drive
interest. Elsewhere, new infrastructure developments are creating opportunities in energy and
utilities and logistics, and funds are tapping into the regions plentiful oil and gas prospects.

PRIVATE EQUITY TARGETS THE NEW LATIN AMERICAN CONSUMER


Although consumers across the region are feeling increasingly squeezed, high-growth
subsectors in consumer markets such as healthcare, education and retail are more
resilient. Healthcare was considered the most promising sector for new investments by
participants in our survey, accounting for almost 16% of the sample (see chart 4).
Private healthcare has grown substantially in Latin America over the past decade as higherearning consumers seek alternatives to inadequate public healthcare services (LC Apr 17 2014,
Consumer). Additionally, ageing populations and health problems such as rising obesity in
countries like Brazil and Mexico have contributed to higher spending on private healthcare.
Private equity investors have long been keen on the sector, providing significant backing
to the Brazilian businesses that have been listed over the last decade.
Carlyle and GP Investments bought stakes in now-listed Brazilian healthcare companies
Qualicorp (QUAL3:SAO) and Tempo Assist (TEMP3:SAO), for example. In general we find
healthcare very attractive because the Brazilian population is ageing, and the demand for
health services and drugs in Brazil is rising well above GDP growth, noted Mr Bonchristiano
at GP.
Ptria launched its own medical diagnostics company, Alliar, three years ago with
Blackstone Group (BX:NYSE). It has since acquired 65 diagnostic imaging units in Brazil and
is growing at annual rate of around 40%, with about $125m in revenues.

3. Greater optimism among private equity houses


How do you feel about investment
prospects in Latin America
over the next 12 months?

Signficant
negative impact
Moderate
negative impact

More
optimistic
Less
optimistic

Similar level
of competition

Moderate
positive impact
Significant
positive impact

Pessimstic
0

More
competition

Little or no impact

The same

Less
competition
I don't know

I don't know
5

10

15

20

No. of respondents

25

How is competition in
Latin America compared
to a year ago?

How is the current macroeconomic


scenario affecting your activities
in Latin America?

12

No. of respondents

15

10

15

20

No. of respondents

Source: LatAm Confidential

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4.3

JUNE 2014

FINANCE

FUNDS BY ORIGIN
No. of respondents

Brazil

International

Mexico

Peru

Chile

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES
A close competitor, the listed So Paulo-based Grupo Fleury (FLRY3:SAO), is also the target
of private equity interest. Gvea Investimentos is in talks to buy a controlling stake in Fleury
and could relinquish its 30% share in competitor, Laboratrio Hermes Pardini, to secure the
deal, according to a source close to the firm.
The Mexican private healthcare industry is less developed than Brazil, but it offers
significant consolidation opportunities. EMX Capital, a spin off from Carlyle in Mexico, told
LatAm Confidential that it is interested in buying diagnostic clinics because there are none
that cover the whole country. Alta Growth Capital has also invested in AmeriMed, a hospital
group in touristic Cancn, and has a stake in Mexico City-based Medicus Soluciones, a
company that provides anaesthetics services to hospitals.
Consumer retail came in second place in our survey, accounting for more than 10% of the
sample, with respondents citing mall food franchises, restaurant chains and apparel retailers
as attractive.
9.4% chose education as one of the most promising sectors. This is unsurprising given the
recent deal flurry in Brazil. Anhanguera Educacional Participaes (AEDU3:SAO) and Kroton
Educacional (KROT3:SAO), which recently merged to create the largest listed education
company in the region, are both backed by private equity money. Advent International owns
5.8% of the new company (previously it had 10.2% of Kroton), while BlackRock (BRLA:LSE)
has 5% of shares, about the same stake it had in Anhanguera before the merger (Update
Alert, May 16 2014). Capital Group (LCG:LSE) has also invested in Rio-based business school
Imbec, Cartesian Capital Group owns a stake in Ser Educacional (SEER3:SAO) and Actis owns
a minority share of Cruzeiro do Sul Educacional.
The education sector in Mexico has similarly started to attract private equity interest.
According to Mr Ledoux, Actis is looking to open an office in Mexico City in 2015, with
education being a chief focus. The firm is currently in advanced stages of closing a deal with
a Mexican company. In Mexico, education, healthcare and consumer are under-penetrated
sectors with fantastic room for growth, said Mr Ledoux. The macro index is pretty
disappointing so far, but we are long-term investors: we believe that Mexico will be attractive
for the next 20-25 years.
Technology also performed strongly in our survey, with 8.3% of our participants regarding
it as the most promising. As we reported in our 2012 private equity survey on Brazil tech

4. The attraction of healthcare

What are the most promising sectors for new investments?


Healthcare
Retail
Education
Energy and utilities
Logistics
Oil and gas
Technology
Construction and transport
concessionaire
Financial services
Food and drink
Agribusiness
Metals and mining
Other fast-moving
consumer goods
Real estate
Other
0

10

15

20

% of respondents
Note: Respondents were asked to choose three options
Source: LatAm Confidential

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4.4

JUNE 2014

FINANCE

72%

of private equity
investment in
Colombia in 2013 came from
four oil and gas deals

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES
investments, venture capital funds from Silicon Valley and Europe have made a series of
recent investments in consumer internet start-ups in Brazil (LC Dec 6 2012, Finance). The
tech wave is also starting to spread across the region more broadly. According to Lavca,
nearly half of all deals in Latin America last year were related to information technology.
Kaszek Ventures is a case in point. In February, the Buenos Aires-based venture capital firm
raised $135m for a new Latin America technology-focused fund, topping its goal of raising
between $80m and $100m. Although at least one fund manager we spoke with complained
about the market going quiet, most were optimistic about technologys long-term
prospects. Digital activity is increasing regardless of the macroeconomic environment,
noted Edson Rigonatti of Astella Investimentos in Brazil. The companies in our portfolio are
growing.

INVESTMENT SURGE IN ENERGY


Separately, private equity funds are tapping into opportunities derived from planned
spending in transport and energy infrastructure. In our survey, oil and gas, energy and
utilities, and logistics tied in third place as some of the most promising sectors for new
investment, each accounting for 9.4% of the sample. Many of our interviewees cited
investment opportunity ports and pipelines, while cement companies, and engineering
and logistics firms were also mentioned.
Oil and gas has also been gaining momentum. 72% of private equity investment in
Colombia in 2013 (which saw record investments of $1bn during the year) came from
four oil and gas deals, according to Lavca (see chart 5). Our research suggests the trend
will continue. In April, Darby Overseas Investments, the private equity arm of Franklin
Templeton Investments (FTF:NYSE), spent $385m for a minority stake in a Colombian oil and
gas pipeline, while Capital Group purchased a 42.5% stake in Colombian oil company Vetra
Energy for $200m late last year. Were very attracted to this business in Colombia because
there is a very reliable and stable oil and gas regime, and the government has never broken a
contract, noted Mr McGuigan.
Mexican oil and gas is also attracting private equity interest due to energy reform
approved in December last year. The legislation has paved the way for the countrys first
oil and gas auctions next year (Update Alert, Mar 24 2014), and is opening opportunities
in midstream and downstream activities (LC Dec 19 2013, Resources and Trade). Private
equity funds in the country could start investing as soon as congress approves enacting
legislation of the bill, which is expected later this year.
Brazil is another important oil and gas hub in the region. Yet government policy, in
particular the cap on domestic petrol and diesel prices, has hurt national oil company
Petrobras (PETR4:SAO) and inhibited development. High-profile casualties such as bankrupt

5. Energy deals dominated in 2013


% of total investments

Oil and gas


Energy
Consumer/retail
Logistics and
distribution
Telecommunications
Information technology
Timber
Other
0

10

15

20

25

%
Source: Lavca

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4.5

JUNE 2014

FINANCE

PRIVATE EQUITY SET TO RIDE


OUT FUNDING CHALLENGES
supplier Lupatech (LUPA3:SAO), and troubled oil start-ups OGX (OGXP3:SAO) and HRT
Participaes (HRTP3:SAO), have made investors more wary.
Valora Investments managed only this month to find a deal in an oil fund it launched
almost two years ago (LC Oct 11 2012, Finance). Many companies in our pipeline
went bankrupt or were acquired for nothing because they set up their business with
unsustainable expectations, noted Paulo Rezende of Valora. That forced us to be
extremely cautious. In the end, the So Paulo-based private equity firm opted for a
minority stake in BTG-controlled offshore logistics company DSB Servios de leo e Gs
for R$150m ($67m). When we analysed different sectors we realised that offshore logistics
services have a reasonably stable demand, stability is now the most important point for
us, explained Mr Rezende.

PRIVATE EQUITY HEADS TO THE PACIFIC


Colombia or Peru. Four of the 12
funds interested in Chile said they
could invest in the country for
the first time this year. However,
none of the funds had intended to
increase their investments over
the next 12 months, while three of
funds looking to Chile said they
would maintain a similar level of
investment in Chile compared to a
year ago.
Although growth has been more
lacklustre in Mexico, investors are
optimistic about planned reforms
to open key sectors of the economy
to private investment. It also has
the advantage of being the second
biggest market in the region after
Brazil, and is relatively underpenetrated by private equity. As

one Mexican private equity fund


manager put it, in Brazil there is
too much capital chasing too few
deals, in Mexico there is too little
capital chasing too few deals.
Of the funds in our survey that
expressed interest in Mexico, ten
of the 16 planned to increase their
investments, while two said they are
looking to invest in Mexico for the
first time this year.
The smaller size of these markets
makes it unlikely that big buyout
firms will abandon Brazil. In fact,
nine of the 22 funds with interest in
Brazil said they planned to increase
investments this year, while three
intended to decrease. However, as
more markets become popular,
Brazil is losing its dominance.

Growing prominence for Pacific Alliance opportunities

How will your investments change in the following countries over the next 12 months?
Increase

Remain at a similar level

Decrease

Invest for the first time

I don't know

25
20
No. of respondents

istening to Isabel Elas speak


its hard to remember that
much of the world is facing an
economic slowdown. Were
constantly surprised at the growth,
said Ms Elas, the managing partner
of private equity advisory Equitas
Partners, from her offices in Lima.
The number of deals happening is
constant because the markets keep
growing, our challenge is to grow as
fast as possible.
While Brazil has traditionally
absorbed the bulk of private equity
capital in Latin America, increasingly
private equity interest is expanding
to the Pacific Alliance countries, a
regional trade bloc formed of Chile,
Colombia, Mexico and Peru.
One reason for this is that Chile,
Colombia and Peru have the allure
of investor-friendly regulation
and high growth at a time when
other markets are slumping. In the
LatAm Confidential survey, four of
the 13 funds looking to Colombia
said they planned to invest for
the first time, while an additional
four said they would increase
their investments in the country.
Similarly in Peru, of the 12 funds
that planned to invest over the
next year, half intend to increase
their investments and four were
considering investing for the first
time (see chart).
Chile also performed well,
though the market was viewed as
being more saturated than either

15
10
5
0

Brazil

Chile

Colombia

Mexico

Peru

Note: 13 respondents expressed an interest in Colombia, 12 respondents expressed an interest in Peru and in Chile, 16 respondents expressed an
interest in Mexico and 22 respondents expressed an interest in Brazil
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Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

JUNE 2014

5.0
5.8 14 YEARS IN THE MAKING
SALVADORS METRO
FINALLY OPENS
5.10 OLYMPICS CONCERNS
RISE
5.12 2Q14 INFRASTRUCTURE
PROJECT TRACKER

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS

Brazil has failed to deliver on much of its R$26bn World Cup investment programme.
A fifth of public transport schemes have been shelved, nine out of 12 airports upgrades
are not finished and almost all stadiums have been delivered late and over budget.

Although the country is likely to guarantee security and avoid logistic problems
during the event itself, long-term economic benefits stemming from the tournament
will be less than expected.

Work on the 2016 Olympic Games has also been slow. One of four main sites is behind
schedule.

In spite of the slow start, we are more optimistic about the longer-term build-up of
urban transport infrastructure, which we believe will generate significant investment
opportunities for suppliers, bus manufacturers and multinational rail manufacturers
in particular.

razils R$26bn ($11.7bn) 2014 World Cup legacy will be patchy at best. Local
organisers in the federal government and in the 12 host cities argue the tournament
has served to trigger investment not just in world-class stadiums, but also in
top-notch infrastructure and human capital, providing long-term productivity
benefits.
But the reality is that a fifth of the planned public transport schemes have not been built
and many others will only be partially operational during the event. A small cluster of
privately run airports have undergone major expansion projects, but the vast majority of
planned airport upgrades remain unfinished. While the country now has a string of modern
stadiums, these were built two-thirds over budget and some of them without services, such
as Wi-Fi, that were initially promised.
In this report we assess Brazils performance, the implications for the future of the
R$370bn infrastructure investment programme, as well as planned investments in public
transport, and the economic impact of the tournament. We also consider the progress
on preparations for the 2016 Olympic Games in Rio de Janeiro. Finally, we identify future
opportunities in operators, suppliers and financiers.
In order to address these issues, we spoke with federal and local government officials,
representatives of local World Cup committees, the head of Brazils Public Olympics
Authority (APO), company executives, lawyers, analysts and officials at the powerful Federal
Audit Court (TCU). We also visited schemes and met with officials in Recife, Rio de Janeiro
and Salvador. These are three cities which historically have invested very little in public
transport, but between them are now spending at least R$25.4bn in this area. The three are
increasingly turning to the private sector to execute these schemes and they are improving
their long-term planning. Finally, we analysed official and company data.
We have also created a database of all major public transport investments postWorld Cup in Brazil, which is available online to subscribers as part of our LatAm
Confidential Transport Database. This includes data on investment levels, operators and
contractors, where available, as well as the rate of progress of the schemes. We will update
this on a regular basis.

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5.1

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
1. Airports and stadiums received most investment
Investments by sector
Original investment*

Airports
Urban transport

Total investment**
100

12
10

80

8
R$bn

The amount spent on public


transport has dropped by
47%, while that on airports
and stadiums has increased
by 62% and 61% respectively

60

45.6
30.4

40

19.6

20

12.0
23.4

12.8

Stadiums^
Other^^

34.3
22.0

Airports

Stadiums^

Urban
transport

Other^^

Original investment

Total investment

*As of 2010 except security, telecoms and tourism (classified as other). **As of Nov 2013 except investment data for Braslia and Viracopos airports which is from May
2014. ^Includes temporary structures for Confederations Cup. ^^Includes ports, security, telecoms and tourism
Sources: CGU, LatAm Confidential

WORLD CUP INVESTMENTS


Brazil was officially chosen to host the 2014 Fifa World Cup six and a half years ago, on
October 30 2007. The first official Matrix of Responsibilities, a list of officially sanctioned
projects agreed between the federal government and the 12 host cities, was published in
2010, with R$22.9bn of investments in stadiums, public transport, airports and ports.
Additional amounts totalling about R$2.5bn were subsequently added in telecoms,
tourism, and training and equipment for police. Many of the schemes were due to be
finished by 2012. Of that total, R$11.6bn was to be invested in public transport, R$5.9bn
on airports and just under R$5bn on stadiums (see chart 1). Almost four and a half years
on and the total budget remains largely the same at R$26.4bn (85% of it coming from the
public sector mainly via loans from public banks). Nevertheless, the amount spent on
public transport has dropped by 47%, while that on airports and stadiums has increased by
62% and 61% respectively. Scores of projects have been delayed or shelved altogether.
Public transport
A total of R$6.2bn has been invested to date in 40 projects, a fifth fewer than was originally
planned (see chart 2). In total, 19 projects were removed as a result of factors we discuss
below. Although some of these will still be built, they will not be ready in time for the
event, and will not be financed through World Cup associated official credit lines. In some
cases, smaller, less ambitious schemes have been put in their place. For example, Porto
Alegre withdrew ten projects worth R$525m, spanning BRT (bus rapid transit), bus, road
and traffic control, and has instead built just two minor road projects worth R$16m.
Many of the schemes are of questionable long-term use. Projects that would have
provided modern, mass transit as part of a wider transport network such as the light rail
and monorail schemes in Braslia and So Paulo, which are intended to link their respective
airports with the metro networks have been withdrawn from the official plan. As a result,
the focus of the investments has been on smaller schemes such as BRTs, which have often
been developed on an ad hoc basis and may not help significantly reduce road congestion.
In Belo Horizonte, for example, the first two BRTs in the city will open as part of seven
schemes being developed for the World Cup but none will link up to the airport or the
centre of the city.
Theres 20km between the airport and where the BRT starts, said Paulo Resende of the
infrastructure unit at FDC, a Belo Horizonte-based business school. If you are going to the
hotel area you will not use the BRT. These are not projects that will provide a great legacy.
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5.2

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
Elsewhere, many of the projects have been delayed and will only partially operate during
the World Cup. This is the case of the light rail scheme in Cuiab and the BRTs in Recife,
which we visited as part of a research trip in mid-May. In Recife, there were plans for two
BRT lines, one running north-south and the other east-west, with total investment originally
at R$272m. Total investment has now risen slightly to an estimated R$296m and the service
will only be working on a limited basis during the Cup. However, we found that in one of
the stations due to be operational many key elements needed for the service to be up and
running, including ticket barriers and display panels, were missing and bus lanes were not
yet separated from the rest of the traffic. Much of the route still looked like a building site.
As a result, most cities will resort to emergency measures to meet public transport needs
during the World Cup. Rio de Janeiro has declared public holidays on three match days,
while some cities still have to take a decision on this. Most of them will send public workers
home early on match days, and will also redirect traffic and create exclusion zones around
stadiums. Both Salvador and Recife will restrict access on their respective metro and BRT
systems on match days to World Cup ticket holders.

Most cities will resort to


emergency measures to
meet public transport needs
during the World Cup

Airports
A little over R$9bn has been invested in the 12 main airports serving World Cup host
cities, substantially more than was initially intended (see chart 3). This is because of the
significant investments made in the three airports conceded to the private sector in 2012,
two years after the original cost projections for the event were made.
Guarulhos, for example, which is operated by Invepar and ACSA, spent R$3.1bn, 64%
more than was originally intended. The concessionaire has built a new terminal for
12m passengers, as well as a multi-storey car park and upgraded the existing terminals.
Viracopos, run by Triunfo (TPIS3:SAO), UGC and Egis, spent R$2.5bn, 237% more than
projected in 2010, building a new 22m passenger terminal, concourse and multi-storey car
park, schemes which are currently between 92 and 97% complete. Less extensive investments
were made by Corporacin Amrica and Infravix at Braslia. Guarulhos and Braslia were
completed according to the terms of the contract and in time for the World Cup. The
concessionaire at Viracopos will be fined for not meeting the event deadline. However, works
only started about 18 months ago, as a result of delays in auctioning the project by the

2. Urban transport: lost opportunity


City
Belo Horizonte
Braslia
Cuiab
Curitiba
Fortaleza
Manaus
Natal
Porto Alegre

No. of
projects
8
1
3
9
7
2
2
10

Original*
Investment
Transport
(R$m)
sectors
1,522
BRT, roads, technology
364
Light rail
481
BRT
446
BRT, bus, roads,
technology
533
BRT, suburban and light rail
1,537
BRT, monorail
411
Roads
525
BRT, bus, roads,
technology
712
BRT, bus, rail, roads.

Recife

Rio de Janeiro

1,610

Salvador

568

So Paulo

2,860

Final**
No. of Investment
Transport
projects
(R$m)
sectors
7
1,406
BRT, roads, technology
1
44
Road
3
1,719
Road, tram
5
464
BRT, bus, roads,
technology
6
575
BRT, rail
0
0
n/a
3
472
Roads
2
16
Roads
7

891

BRT, bus, rail, roads.

BRT

1.989

BRT, stadium access

BRT

19

Monorail

549

Pedestrian access

Road

Status as of May 2014


All schemes delayed except 1 BRT and 1 road
Light rail scheme shelved.
Tram will not be ready in time
All schemes delayed, two bus lane projects
shelved
All schemes delayed
Both projects shelved
3 schemes delayed, 1 shelved
10 schemes shelved, 1 road access scheme
to stadium ready
Highway bridge ready, road delayed, BRTs
will not be ready or operate partially
1 access scheme will be ready, the other
delayed
BRT scheme cancelled in favour of metro,
which will be partially operational for Cup. One
access scheme will be ready, the other not
Monorail will not be ready, access to
stadium delayed

*Jan 2010. **Nov 2013


Sources: CGU, Contas Abertas, LatAm Confidential, Portal da Copa (Sinaenco)

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5.3

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
federal government. However, the fact that these three projects are being delivered (partially
or fully) on the eve of the World Cup means that there will be little time for tests to take place
and they will not be working at full capacity.
Progress of works designed to improve public airports has been even slower. None of
them will be complete in time for kick-off, despite some of the projects involving quite
minor alterations. In most cases this will have little operational impact. In Manaus, for
example, new gangways will not be ready to connect the terminal with aircraft, but the main
upgrades to the passenger terminal will be ready. Recife abandoned the one project it had
planned construction of a new air traffic control tower priced at R$20m, but the airport

3. Airports: privately run airports invested more


Original investment (R$m)*
Final investment (R$m)**

Planned completion date*


Actual completion date**
409
430
748
900
88
101
73
157
280
171
327
445
577
573
346
88
20
0
687
444
60
113
1,219
3,107
742
2,500

Airport: Confins^
City: Belo Horizonte
Contract: Public works

Upgrade of existing terminal 1,


expansion of runway and
concourse

Oct-13
Not completed

Airport: Juscelino Kubitschek Upgrade, expansion of existing


terminal, concourse (concession
City: Braslia
includes car park expansion)
Contract: Concession 25yrs

Apr-13

Airport: Vrzea Grande


City: Cuiab
Contract: Public works

Upgrade of existing
passenger terminal,
new car park

Jul-13

Airport: Afonso Pena


City: Braslia
Contract: Public works

Upgrade of existing passenger


terminal, Expansion of runway
and taxiing area

Aug-11

Airport: Pinto Martins


City: Cuiab
Contract: Public works

Upgrade and expansion of


existing passenger terminal

Jun-13

Airport: Eduardo Gomes


City: Curitiba
Contract: Public works

Upgrade of existing
passenger terminal

Dec-13

Airport: So Gonalo de
Construction of greenfield
airport including passenger
Amarante City: Fortaleza
Contract: Concession 25 yrs (+5) terminal, runway, concourse

May-14

Not completed

Not completed

Not completed

Not completed
Apr-14
May-14

Airport: Salgado Filho


City: Manaus
Contract: Public works

Upgrade and expansion of


existing passenger terminal

Jun-13

Airport: Gilberto Freyre


City: Natal
Contract: Public works

New control tower

Apr-13

Airport: Galeo^
City: Porto Alegre
Contract: Public works

Upgrade of existing
passenger terminals 1 and 2

Not completed

Project shelved

Airport: Deputado Lus Eduardo Upgrade of existing terminal,


Construction of control tower,
Magalhes City: Recife
expansion of concourse
Contract: PPP 33 yrs

Sep-12
Not completed
Mar-13
Not completed

Airport: Guarulhos
City: Rio de Janeiro
Contract: Public works

New terminal 3, upgrade to


taxiing, runways and concourse
(conc. to include new car park)

Airport: Viracopos
City: Salvador
Contract: Concession 30yrs

Expansion of existing terminal, new Nov-13


terminal, concourse (works expanded
Not completed
to include new car park, taxiing
area, runway improvements)

Nov-13
May-14

*July 2010. **Nov 2013 except Braslia. All values refer to investments up to World Cup, further investments planned particularly in conceded airports. ^Operators of all airports Infraero except Braslia (Infravix and Corporacin
Amrica), Guarulhos (Invepar and ACSA), Viracopos (Triunfo, UGC and Egis). Confins and Galeo were auctioned to private sector in November 2013 were 25 and 30 yrs respectively however concessionaires only take on full operation 2H14. NC: Not complete at time of going to press as per terms of original contract.
Sources: CGU, LatAm Confidential, Portal da Copa (Sinaenco)

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5.4

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
had already been modernised and is operating below capacity. In some cases the situation
may be more critical though. As of last February, the R$171m project at Fortaleza which
includes upgrade and expansion of the passenger terminal and which was originally to have
been finished by June 2013 was only 16% complete. A temporary tent-like structure has
been erected in its place. On a site visit in mid-May to Galeo Rio de Janeiros international
airport, where the upgrade of the passenger terminals is still incomplete self check-in
at electronic terminals for a domestic flight took one hour due to long queues and lack of
assistance from overstretched staff. Facilities were poor.

As of last February, the


R$171m project at Fortaleza
was only 16% complete. A
temporary tent-like structure
has been erected in its place

Stadiums
R$8bn or just under a third of all World Cup investments, was spent on upgrading and
building 12 stadiums (see chart 4). That is twice what was spent in South Africa in 2010,
which had two fewer stadiums. Just two of Brazils stadiums Minero in Belo Horizonte
and Castelo in Fortaleza were built on time, in December 2012. Half of all stadiums

4. Stadiums: extra time


Planned completion date*
Actual completion date**

Original investment (R$m)*


Final investment (R$m)**
426
695
745
1,403
454
570
185^
327
623
519
515
670
350
400
130
330
530
533
600
1,050
592
689
555^^
820

Stadium: Minero
City: Belo Horizonte
Contract: PPP 27 yrs

Contractors:
Construcap, Egesa and
Hap (also operator)

Dec-12

Stadium: Man Garrincha


City: Braslia
Contract: Public works

Contractors:
Andrade Gutierrez
and Via Engenharia

Dec-12

Stadium: Pantanal
City: Cuiab
Contract: Public works

Contractors:
Santa Brbara and
Mendes Jnior

Dec-12

Stadium: Baixada
City: Curitiba
Contract: Private works

Contractors:
CAP

Dec-12

Stadium: Castelo
City: Fortaleza
Contract: PPP 8+8yrs

Contractors: Galvo,
Andrade Mendona,
BWA (BWA also operator)

Dec-12

Stadium: Amaznia
City: Manaus
Contract: Public works

Contractors:
Andrade Gutierrez

Dec-12

Stadium: Dunas
City: Natal
Contract: PPP 20 yrs

Contractors:
OAS

Dec-12

Stadium: Beira Rio


City: Porto Alegre
Contract: Private

Contractors:
Andrade Gutierrez

Aug-12

Stadium: Pernambuco
City: Recife
Contract: PPP 33 yrs

Contractors:
Odebrecht (contractor). ISG,
AEG Facilities (operators)

Dec-12

Stadium: Maracan
City: Rio de Janeiro
Contract: Public works

Contractors:
Andrade Gutierrez,
Odebrecht

Dec-12

Stadium: Fonte Nova


City: Salvador
Contract: PPP 35 yrs

Contractors:
Odebrecht and OAS
(also operators)

Dec-12

Stadium: Itaquero
City: So Paulo
Contract: Private works

Contractors:
Odebrecht

Dec-12

Dec-12

May-13

Apr-14

May-14

Dec-12

Mar-14

Dec-13

Apr-14

May-13

May-13

Apr-13

May-14

*As of Jan 2010. **As of Nov 2013, date of last publication of Matrix of Responsibilities. ^R$138m on stadium itself. ^^Original value refers to upgrade to Morumbi stadium, event subsequently moved to Itaquero.
Sources: CGU, LatAm Confidential, Portal da Copa (Sinaenco)

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5.5

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
were not inaugurated until this year and two of them not until this month. In some cases,
test matches have taken place with works not yet finished. All stadiums bar the Castelo,
where costs were reduced by around 17% as a result of stiff competition for the construction
contract, were delivered over budget. In Rio, the cost increase was as much as 75%.

EXPLAINING THE PROBLEMS

Poor planning, delays with


expropriations, red tape, and
high construction costs will
continue to pose obstacles
to the development of future
projects

All manner of problems, ranging from Fifa instructions to funding difficulties and heavy
rains, conspired to create delays and increase costs. But we believe four structural issues
underpin the failures of the 12 host cities to meet their commitments. We also argue that
these matters will continue to pose obstacles to the development of future projects: poor
planning, delays associated with expropriations, red tape, and higher-than-expected
construction costs.
1. Poor planning
Many of the local authorities responsible for developing the schemes had insufficient
resources and technical capacity, even though a 2012 law obliges them to draw-up public
transport plans. For example, Manaus planned two projects for the World Cup a BRT
and a monorail with total investment of R$1.5bn and funding approved from the state
government and the Caixa Econmica Federal, the public bank. However, auditors pointed
out that the two projects followed much of the same route and even had some stations
in exactly the same location. As a result, the TCU and the Comptroller General (CGU)
intervened and funding was blocked. Bar a few exceptions such as So Paulo and Curitiba,
long-term urban planning tends to be poor in Brazil. Consequently, many schemes such
as the BRTs in Belo Horizonte are unrelated to any broader and more consistent vision.
Similar inadequacies help explain the cost increases and delays in stadium constructions.
For example, project designs were altered and entirely new roofs installed in stadiums in
Curitiba and Rio de Janeiro.
2. Expropriations
Perhaps the largest single cause of delays has been due to legal disputes over land
expropriations. The state of Pernambuco created a department staffed with architects and
engineers tasked with dealing with this matter, but the process took much longer than
expected and as a result some routes had to be altered. When we visited Recife in midMay, one month prior to kick-off, only 90% of expropriations for World Cup projects been
completed. In Belo Horizonte, schemes were delayed for over a year as a result of this and
the BRTs will not be fully operational. In Rio, residents of three shantytowns went to the
Organisation of American States to protest that their human rights were being violated as
a result of having to be relocated to make way for new BRT lines, delaying the schemes (LC
Mar 31 2011, Infrastructure). These factors are particularly challenging because of the
reluctance of local mayors to take action that might be controversial. The So Paulo state
government has attempted to reduce expropriation risk for contractors on future projects
such as Line 6 and 18 by assuming the costs associated with this.
3. Red tape
Tendering processes in the public sector are inordinately complex and time-consuming,
and contributed to the delays involving public entities such as Infraero, the airport
operator. While the federal government addressed this by developing a new fast-track
tender process, the Differentiated Contracts Regime (RDC) [it was subsequently extended
to all federal infrastructure schemes], the device has not been entirely effective. Some
World Cup projects were submitted under the old tender law. Moreover, even under the
new framework those affected still enjoy recourse to appeal. Environmental licensing
procedures are typically long drawn-out, notwithstanding reforms that provide fast-track
licensing for motorway concessions.
Brazils highly autonomous auditors, the TCU and the Public Ministry (MP) and their
state and municipal equivalents, intervene frequently. In some cases, this has helped

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5.6

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
reduce overcharging. The TCU claims to have saved the public purse a total of R$550m on
World Cup projects, including R$97m on the Maracan stadium in Rio as a result of, for
example, identifying items on the budget that had been mentioned twice. However, in other
cases, these bodies tend towards a pedantic legalism. For example, on the So Paulo Line 17
monorail auditors intervened over the lack of an engineering blueprint, but Brazilian law
does not clearly define what type of blueprint is required. Despite these deficiencies, reform
which would require a constitutional amendment would be unpopular and is highly
unlikely to occur (LC Mar 28 2013, Infrastructure).

7.75%

Increase
in the
cost of construction in the
12 months to April 2014,
compared with consumer
inflation of 6.28%

4. Rising construction costs


A tight jobs market, increases in the minimum wage above the rate of inflation, and
in particular the uncompetitive nature of local manufacturers of key materials have
contributed to higher-than-expected rises in the cost of construction, pushing up total
project investments. The cost of construction increased 7.75% in the 12 months to April
2014, compared with consumer inflation of 6.28% over the same period. The cost of
labour construction increased 8.58% and key materials, such as metal parts, grew 13.19%,
according to the INCC-M index.

THE IMPACT
The R$26bn investment in the World Cup has helped create jobs and boost the bottom line of
local contractors, but is small compared to the overall size of Brazils economy. It represents
just 0.7% of planned investments from 2010-2014, according to Moodys, the ratings agency.
Most construction contracts have been picked up by Brazils large privately held
contractors. Odebrecht, for example, was involved in consortiums building four stadiums,
as was Andrade Gutierrez. OAS built two. The food and drinks, hospitality and advertising
sectors are likely to see a short-term uptick in sales during the 32 days of the event. We are
more optimistic about the impact of some stadium developments. Some football venues
could be underused, especially in cities such as Manaus that lack both strong local teams and
football tradition. However, stadiums such as Fonte Nova in Salvador have been created as
multi-use arenas, allowing their operators to maximise ticket sales.
There is also the potential for some stadiums to help in urban regeneration, as was seen
with the Olympics sites in London and Barcelona. For example, the Arena Pernambuco in
Recife is part of a 240ha site with plans for a university, 4,700 housing units and a convention
centre. Property prices around Fonte Nova in a previously down-at-heel part of central
Salvador have risen substantially since the stadium was opened in April 2013. Similar plans
to develop the area exist around the Itaquero stadium in the poor east of So Paulo.
Expansion in the capacity and improvements to the level of comfort of Brazils airports
should help to ease pressure on a sector that has struggled to cope with rapidly rising
demand. On urban transport, although we are sceptical about the pace of progress and
the immediate impact of schemes, we believe they play an important role in kick-starting
a longer-term and more ambitious push to improve the competitiveness of Brazilian
infrastructure vis--vis its peers (see chart 5). In 2012, the federal government announced
R$22bn of investments for public transport in cities with over 700,000 inhabitants under the
PAC Urban Mobility programme (LC Aug 2 2012, The Word in Brasilia). Further sums

5. Brazil scores badly compared to peers


Ranking of key emerging markets on basis of quality of selected infrastructure sectors
Argentina
Overall quality
120
of infrastructure
Airports
111
Rail
106
Roads
103
Ports
99

Brazil
114

Chile
45

Colombia
117

Mexico
66

Peru
101

China
74

Indonesia
85

Korea
23

Poland
84

Russia
93

Turkey
41

123
103
120
131

46
65
27
32

96
113
130
110

64
60
51
62

85
102
98
93

65
20
54
59

68
44
78
89

22
8
15
21

103
70
105
97

102
31
136
88

33
52
44
63

Note: Ranking out of 148 countries


Source: World Economic Forum

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5.7

JUNE 2014

INFRASTRUCTURE

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
will be contributed to projects in these cities via loans from public banks, in particular the
BNDES, state and municipal governments, as well as by the private sector.
We have spoken with federal and local governments in order to identify which schemes
are being built where and by whom. We have identified a pipeline of 68 projects. 37 of these
have estimated investments of R$86bn and for the most part have either been tendered
already or they are being built. The investments associated with a further 31 schemes are still
to be calculated (see chart 6).
Of this pipeline, seven projects so far will be developed as PPPs and two of these have not
yet been tendered Curitiba metro and Line 18 of the So Paulo monorail. The former will

6. R$86bn pipeline
Non-World Cup public transport projects under development in Brazil
BRT

BRT

Roads

Bus

Ferry

Metro

Rail

Monorail

Tram
Par
Amazonas

BRT

BRT

Total number of PPPs,


4 of which are in
So Paulo

Piau

BRT
Maranho

Ceara

Rio Grande do Norte

Paraba

Pernambuco
BRT
Goias

Alagoas

BRT

Alagoas
Amazonas
Bahia
Cear
Distrito Federal
Gois
Maranho
Minas Gerais
Mato Grosso do Sul
Par
Par
Paraba
Paraba
Pernambuco
Piau
Paran
Rio de Janeiro
Rio Grande do Norte
Rio Grande do Sul
So Paulo
Total

Investment
(R$m)
250
219
7,450
n/a
1,228
1,565
n/a
n/a
n/a
n/a
414
n/a
n/a
1,836
n/a
4,565
16,080
n/a
383
52,280
86,270

Bahia

Mato Grosso do Sul


BRT

Distrito Federal
BRT
Minas Gerais

Rio de Janeiro
BRT BRT

So Paulo

Paran
BRT

BRT

BRT

BRT

Rio Grande do Sul

Sources: Abifer, Casa Civil of Bahia State Government, , LatAm Confidential, Ministry of Cities, So Paulo Metropolitan Transport Secretariat

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5.8

JUNE 2014

INFRASTRUCTURE

Our site visits have shown


particular progress in the
cases of the metro schemes
in Rio de Janeiro, where
traffic has been completely
rerooted along major
thoroughfares

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
be developed as a 30-year PPP with around half the funding coming from the public sector and
the tender is expected to be launched imminently, while the bid for the latter is being revised
to address issues raised by the TCE, the state branch of the audit court. Other future schemes,
which are at earlier stages and which may be developed as PPPs, are the Porto Alegre metro
and Line 20 of the So Paulo metro.
22 of these schemes are already being built. Our sites visits have shown particular progress
in the cases of the metro schemes in Rio de Janeiro, where traffic has been completely rerouted along major thoroughfares, [a consortium led by Odebrecht and Queiroz Galvo has
completed the excavation of a 5km long tunnel between two of the stations], and well as in
Salvador, where the scheme will open next month (see 14 years in the making Salvadors
metro finally opens).
We believe that this longer-term build-up is generating investment opportunities.
1. Operators
There are two major listed operators in Brazil, CCR (CCRO3:SAO) and Triunfo, while a
third, Invepar, is planning an IPO later this year.
CCR in which the privately held contractors Camargo Correa and Andrade Gutierrez
both hold about 17% has a diversified portfolio with a number of mature projects
generating good cashflow in the toll-road sector. It also has stakes in the Rio tram, Salvador
metro and Line 4 of So Paulo metro (all under construction), airports in the Caribbean and
Ecuador. Also, it recently required the concession to operate and expand Confins airport,
which it will fully assume later this year (Update Alert, Nov 25 2013). Revenues increased
12% YoY in 1Q14. Its leverage is relatively low, with net debt as a share of ebidta over the last 12
months falling from 2.1x in 1Q13 to 1.9x in 1Q14 (see chart 7).
Triunfo does not have any urban transport schemes, but it has a stake in Viracopos
airport, as well as in ports and roads, which helped revenues at the company grow 94% to
R$474m in 1Q14. However, the capex for Viracopos is significant, with the concessionaire

14 YEARS IN THE MAKING SALVADORS METRO FINALLY OPENS


Salvadors city government signed
the contract for the construction of
a 12km metro line in the city with
the Metrosal consortium (made
up of Andrade Gutierrez, Camargo
Corra and Siemens) in 1999. Back
then it was estimated that the project
would cost R$400m. But the costs
subsequently more than doubled,
and the amount of track built halved.
The municipality claimed that
certain contractual elements such
as ventilation shafts, substations
and signage had not been delivered.
The contractor, on the other hand,
claimed that it had failed to be paid
on time. Meanwhile, the public
ministry launched investigations
into allegations of fraud and
overpayments. The municipality did
not have the resources to get the line
up and running. Six trains purchased
from Hyundai-Rotem were parked

at the port and were gathering dust


for several years. The project became
a symbol of waste of public resources
among local residents.
When the chance came for the
city to propose a transport scheme
for the World Cup, the state
government vetoed the original
plan for a BRT linking the centre
with the airport, arguing that it
wanted instead to put the resources
into making the existing stretch of
metro feasible.
The breakthrough came in 2013
when the project was transferred
to the better-equipped state
government. It launched a 30year PPP that was won by CCR, a
listed company (in which Andrade
Gutierrez and Camargo Corra are
shareholders) and the sole bidder on
the project. Under the new contract,
CCR has built an additional 2km

in about six months and made the


other 6km operational, including
spending R$18m retrofitting the
existing trains. A further 4km is due
to be operational by December and a
final 5km stretch will be launched on
a public works basis with CCR given
first right of refusal on construction
as well as becoming the operator
of that stretch. Applications for
environmental licences have been
made for a second 22km line to the
airport, to be finished by 2017.
The PPP contract has been much
more successful where the public
works contract failed, because
payments are contingent upon
certain milestones being completed,
such as expropriations and having
the stations operating. We saw
trains being tested on the track and
the line is to be open to the public
from June 11.

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5.9

JUNE 2014

INFRASTRUCTURE

11.2%

YoY fall in
production
for Brazils domestic market
among the six main local bus
manufacturers in 1Q14

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
(in which UGC, Egis and Infraero also hold stakes) taking out R$1.8bn in loan and bond
commitments recently. As a result, Triunfos debt is also relatively high, at 3.6x.
Inveparhas stakes in relatively new projects the Transolmpica BRT, the Rio tram and
Lines 1 and 2 of the metro in that same city. It is also responsible for acquiring the rolling
stock for Line 4 of the Rio metro (15 trains from Chinas CCR) and has the right to operate
that line. Finally, it has a stake in Guarulhos airport. It has been relatively successful on
these schemes, building two new stations on the Rio metro, and carrying out the expansion
of Guarulhos in record time. It has strong shareholders in the form of the pension funds of
Petrobras (PETR4:SAO) and Caixa Econmica Federal, and a Banco do Brasil (BBAS3:SAO)
investment vehicle, as well as the contractor OAS, which owns 22.4%. It is expected to hold an
IPO later this year.
2. Suppliers
Bus manufacturers have seen sales decline after several municipalities froze fares following
last years protests and then deterred investment. Production for the domestic market
among the six main local manufacturers fell 11.2% YoY in 1Q14, compared to a rise in exports
of 4.4% over the same period. As a result, suppliers negotiated with the federal government
to have investments in school buses brought forward. However, the majority of new public
transport investments are in the bus and BRT sectors. Between 4,000 and 4,500 units will
be ordered over the next two years, predicts Jos Martins of Fabus, an industry association,
including orders related to 60 projects worth R$8bn in medium-sized cities. Investment
levels should pick up in particular from 1H15, as tariff rises are likely to be delayed until after
the elections.
There are good opportunities for rail suppliers. At least R$33bn of major rail schemes exist
on which no supplier has been appointed. These include two monorails in Rio de Janeiro
and So Paulo, six metro schemes Curitiba, Fortaleza, So Paulo and Porto Alegre a seventh
project, line 2 of Salvador metro is likely to be supplied by Hyundai-Rotem (A064350:KSC)
which supplied trains for line 1 and an electric light rail project in Salvador.
We believe that these schemes should favour companies that manufacture locally
such as Alstom (ALO:PAR), Bombardier (BBD.B:TOR), Scomi (SCOMI:KLS) and Siemens
(SIEX.N:GER) and which can take advantage of tax incentives and cheap public financing.
Alstom recently invested 15m ($20m) in a plant in So Paulo making trams for Brazil and
the rest of South America. Orders for the global company in Central and South America were
up 7% in 1Q-3Q13. Bombardier also recently opened a plant in So Paulo making monorail
trains from which it is supplying Line 15 of that the So Paulo network and which is intended
to become its global production base for this type of vehicle. The company told us that

7. Key financial indicators for three listed urban transport concessionaires


1Q13
Revenue

1Q14
Ebidta

Net debt/Ebidta (last 12 months)


5

1,200

800

900

600

R$m

Times

1,000

R$m

1,500

600

400

300

200

CCR

Invepar

Triunfo

2
1

CCR

Invepar

Triunfo

CCR

Invepar

Triunfo

Sources: Companies

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5.10

JUNE 2014

INFRASTRUCTURE

R$300m

Total of of four series of


bonds due in 2025 issued by
the operator of Guarulhos
airport in March this year

BRAZIL UNDERACHIEVES ON
WORLD CUP PROJECTS
it also plans to bid for Line 18 of the So Paulo monorail alongside the same grouping (with
Queiroz Galvo and OAS) for which it is supplying Line 15.
However, there is some uncertainty relating to ongoing investigations by the public
ministry, the anti-trust authority, Cade, and the federal police into alleged cartel activity
concerning supply of trains to the So Paulo rail network and revealed by Siemens
(SIEX.N:GER). Companies under investigation include Alstom, Balfour Beatty Rail Power
Systems (BBY:LSE), CAF, Bombardier, Daimler-Chrysler (DAIX.N:GER), Hyundai-Rotem,
MGE (MGEE:Nasdaq), Mitsui (8031:TYO), Siemens, Tejofran, Temoinsa, TTrans.
Siemens would be treated with leniency because of its role in revealing the cartel.
However, any companies convicted could face fines, suspension from public tenders for up
to two years, and criminal charges for directors.
3. Debt finance
Financing for the sector is dominated by BNDES and the Caixa. However, there is a small
but growing use of infrastructure bonds, which carry certain tax exemptions. For example,
the operator of Guarulhos airport issued four series of bonds due in 2025 in March this year
for a total of R$300m. The Viracopos concessionaire in February issued the same amount
for four series due in 2025 and 2026. The bonds were fairly small in both cases compared
to the amounts they took out with the BNDES in loan commitments: R$3.5bn and R$1.5bn,
respectively.

OLYMPICS CONCERNS RISE


Just a few months into his new role, and General Fernando Azevedo e Silva, the most
senior Brazilian official directly responsible Rios 2016 Olympics organisation has
been coming under pressure.
John Coates, the vice-president of the International Olympic Committee (IOC), stoked
initial concerns when he claimed the citys preparation in Rio was the worst he had ever
experienced. Mr Coates subsequently detracted his comments, but the claims had already
gone global prompting feverish speculation in the British press that the event could be
transferred back to London. Other negative publicity was generated when the members
of the German sailing team said that the waters of the Guanabara Bay were simply too
polluted for practice scheduled for later this year to take place.
Gen. Azevedo remains calm. Has there ever been an Olympics where there havent been
major concerns? said General Azevedo, speaking to LatAm Confidential from his office

1. Infrastructure, greatest beneficiary of Olympics


Olympics funding by origin and destination
Origin
Public

Destination*

% of total^

Municipality
State
Federal
Other public
Private

Legacy
Legacy
Legacy
Facilities

10.4
22.8
3.6
3.5

Sponsorship and sale of tickets


PPPs^
PPPs^

Operation
Legacy
Facilities

18.7
27.6
11.2

*Legacy refers to transport, sanitation and urban renewal schemes which are not directly related to the operation of the event. Other public refers to funding across all
three spheres of government for facilities such as stadiums and training areas directly related to the games. **Data does not add up to 100% because of rounding down of
decimal points. ^Includes payments from public to private sector
Source: APO

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5.11

JUNE 2014

INFRASTRUCTURE

OLYMPICS
CONCERNS RISE
in central Rio de Janeiro. I remember in London when [G4S] said 20 days before the event
that it wouldnt [be able to look after] security. He insists that disputes are inevitable given
the complexity of the Olympics, with every committee wants the best for itself, every
federation thinks that their sport is the most important. This is normal, but there is a cost
associated with this and we need to see what is possible within the demands of the IOC.
The total budget so far for the event (which is revised every six months) currently stands
at R$37.5bn ($16.8bn), of which R$5.6bn will be spent on the facilities, R$7bn on operations
and the remainder on transport, sanitation and a variety of infrastructure schemes (see chart
1). 40% of the funds will come from the public sector with additional amounts, although it is
not yet clear how much, in the form of payments and other guarantees made through public
private partnerships.
So far, less than a fifth of the planned work on facilities has been completed. Gen Azevedo,
who reports directly to President Dilma Rousseff, admits that the timetable for the R$854m

2. Olympics schemes
Sector/project

Description

Investment (R$m),
[private funding]

Stage

Estimated
completion

Facilities
Athletes village

n/a

[2,910]

1Q16

Barra sports venues and electricity

n/a

900

1Q16

Copacabana complex

Rowing and sailing venues

n/a

n/a

Deodoro complex

Upgrade of sporting complex

853

Maracan complex

Upgrade of sporting complex

183

Olympic park PPP

Infrastructure, media, landscaping, training areas

Training

Training centres for games

n/a
and

n/a

1,652

4Q14

n/a

n/a

Sanitation
Barra da Tijuca Sanitation programme

Sewage collection

131

3Q15

Greater Tijuca flood control

Construction reservoirs, tunnels

607

2Q16

Jacarepagu environmental programme

Reduction of soil erosion on riverbanks

369

2Q15

Lagunar da Baixada de Jacarepagu complex

Decontamination of water

673

Sewage and rubbish programmes

Sewage collection, installation filters, floating platforms

114

West Zone Sanitation

Installation piped sewage

n/a
and

1Q16

[431]

2Q16

Services
Operation of games

Food, transport of athletes etc

[7,000*]

n/a

n/a

Transport
Barra roads

Widening of roads and BRT

BRT Transoeste

BRT linking west zone with Olympic park

514

1Q16

92

BRT Transolimpica

BRT linking Olympic sites

1Q16

2284 [479]

Jo bridge expansion

Additional lanes, tunnel and cycle route on bridge linking


So Conrado with Barra

2H16

460

2H16

Line 4 metro

16km line from Ipanema to Barra

Tram

Tram in central Rio

8,791 [1,157]

2Q16

1189 [656]

Upgrade to stations

2H16

Upgrade to train stations serving Olympic sites

n/a

n/a

Other

Urban renewal around stadiums including lighting, drainage,


cycle paths, new schools

118

1Q16

Porto Maravilha PPP

Urban renewal in port area including building tunnel,


cultural centres

8,200 [7,608]

2Q16

110

3Q14

Urban renewal

Other
Anti-doping laboratory

n/a

*Funding from sponsorship


Sources: APO, LatAm Confidential

Project stage:
Project and contract development, pre-bid.
Key studies approved, contract and tender published. Operator or contractor selection process underway.
Construction underway
operator selected. Construction pending.

Contractor/

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5.12

JUNE 2014

INFRASTRUCTURE

The foundations for the main


Olympic Village in Barra da
Tijuca have been laid and
are on schedule

OLYMPICS
CONCERNS RISE
upgrade of the Deodoro stadium one of the four sites in which the games will be held and
which will be used for sports such as mountain biking and shooting is tight. Contracts
for two separate projects to develop the site were tendered in April, several months later than
had been planned. A bidder has yet to be selected, so work will not be completed until late
2015 or early 2016.
Gen Azevedo says confusion about which authority was in charge of the site was the
main reason for the delay, with the federal government passing on responsibility to the
state government which in turn passed it on to the municipality. Gen Azevedo said that the
rigidity of Brazilian norms of public administration must take some of the blame.
There is some progress, however, he said. The foundations for the main Olympic Village
in Barra da Tijuca which is being carried out by a consortium led by Odebrecht have been
laid and work is on schedule. This is despite a recent strike over pay by construction workers
on the site. The dispute has been settled and weekend shifts have been introduced to make up
for lost time. Elsewhere, developers are pressing ahead with a variety of transport schemes
although many of them are not scheduled to be completed until 2016 (see chart 2).

2Q14 INFRASTRUCTURE PROJECT TRACKER


JUNE 5: PERUVIAN TRANSMISSION AUCTION
Bids are to be submitted by June 5 to Proinversin, Perus private investment promotion
agency, for the Moyobamba-Iquitos transmission line in the northern part of the country.
The deadline was originally set for April 5, but was pushed back by two months. The
planned investment is $434m and the contract is being developed on a design, finance,
build and operate basis, for a period of 30 years.

JUNE 10: DECISION ON CONTROVERSIAL CHILEAN HYDRO PLANT


A senior group of Chilean ministers is to announce its decision regarding 35 complaints
filed in relation to the HidroAysn hydroelectric complex. The complex, made up of five
plants on the Baker and Pascua rivers in the south of the country, would supply muchneeded 2,750MW capacity. It is a 51%/49% joint venture between Endesa (ENDESA:SGO)
and Colbun (COLBUN:SGO). Environmental activists, including Chilean Greenpeace
and residents of local communities, have opposed its construction. In March, the
administration of former president Sebastian Piera ruled that further environmental
studies were required (Update Alert, Mar 12 2014). However, the incoming administration
of President Michelle Bachelet revoked that decision. To date, the joint venture has
invested $300m on the project.

JUNE 11: SALVADOR METRO TO FINALLY OPEN


The first 8km of the long-awaited Line 1 of the metro in Salvador, north-east Brazil is to
open. The project to build 12km of line at a cost of R$400m was originally awarded by the
city to a consortium of Camargo Corra, Andrade Gutierrez and Siemens in 1999, but only
half that distance was delivered at twice the original cost. Legal disputes ensued and the
scheme was subsequently auctioned as a 30-year PPP in 2013 to CCR (in which Camargo
Corra and Andrade Gutierrez are shareholders). CCR has built an additional 2km and will
extend Line 1 further, and also build a second 22km line to the airport by 2017.

JUNE 12: WORLD CUP KICK-OFF


The 2014 Fifa World Cup opening match between Brazil and Croatia is to be held in
Itaquero, a R$820m stadium in eastern So Paulo built by Odebrecht and delivered
this month, almost 18 months after the original stadium project at another site in the
city was due to be completed. The stadium has 68,000 seats and was built with public
financing of R$400m. A total of R$26bn has been spent on the World Cup including
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5.13

JUNE 2014

INFRASTRUCTURE

INFRASTRUCTURE
PROJECT TRACKER
R$8bn on stadiums of which 52% is publicly funded and a further 46% was financed in
the form of loans from public banks to the private sector (see Brazils underachieves on
World Cup projects).

JUNE: BRAZILIAN REGIONAL AIRPORT AUCTIONS

It is unlikely that the


contract to build Limas Line
3 metro could be auctioned
before 1H15

The federal government has announced that it intends to launch tenders for public works
at provincial airports from June. This is part of a R$7.3bn airport investment plan, which
includes subsidising airfares, increasing the number of flights and improving facilities at
these locations. These schemes will not be developed on a PPP basis, as has been the case with
six airports to date (including five existing airports and a greenfield project in Natal), because
they would not be sufficiently profitable. However, the relative success of Brazils airport PPP
programme means that airports in a number of large cities could be privatised. Potential
candidates include the airports of in Salvador, Recife, Porto Alegre, Manaus and Fortaleza.

JULY: ISAGEN SALE


The sale of the Colombian governments 57% stake in Isagen (ISAGEN:CB), the third
largest generation company in the country by capacity, could go ahead in July. The current
administration of President Juan Manuel Santos has sought to privatise the company
and use the estimated $2.3bn proceeds to invest in the $25bn infrastructure programme.
Recently, a judicial body overturned an objection to the sale, but it is likely to depend on
the outcome of the second round of presidential elections scheduled for June 15 (Update
Alert, May 23 2014). Mr Santos rival, the right-wing candidate Oscar Ivn Zuluaga, who
is roughly neck-and-neck in polls, has opposed the sale (Update Alert, May 27 2014).
Recently the first motorway concession in the infrastructure programme, Connection to
the Pacific 2, was formally awarded to a consortium led by Colombias Odinsa and which
also includes Portugals Mota Engil (EGL:LIS).

SEPTEMBER 12 2014: BRAZIL ENERGY AUCTION


An auction for new hydroelectric, gas, coal, solar, wind and biomass projects that will supply
the grid from January 1 2019 is to be held on this date by EPE, the Brazilian energy research
company, a government agency. This is part of the regular long-term electricity auctions held
by the government. A separate auction could also be held for the So Luiz de Tapajs hydroelectric plant in the Amazon later this year. This plant, currently the subject of environmental
assessment, would supply 8,000MW of energy. Planned investment would be R$18bn.

2H14: LIMA METRO LINE 3


A consultant is to be appointed to carry out initial studies for the third line in the metro
system in Perus capital, Lima. The studies are to take at least a year. It is therefore unlikely
that the contract to build the line could be auctioned before 1H15. Line 3 would cover a
length of 31.6km. It is expected to cost between $4.5bn and $5bn, and would be built on a
similar basis as Line 2, which was awarded to a consortium of Spanish and Italian firms
earlier this year (Update Alert, Apr 3 2014).

4Q14: SO PAULO METRO EXPANSION


The first 7.7km stretch of the Line 17 monorail PPP being built by CR Almeida and
Andrade Gutierrez with technology from Malaysias Scomi is expected to open at the end
of the this year. This first part of the 18km line is between Congonhas, the domestic airport,
and Morumbi overground station in the south-west of the city. Initially 100,000 passengers
per day are expected to travel on the system, increasing to 400,000 per day when it is fully
complete. The total investment is R$4.76bn. Separately CCR, the concessionaire of Line 4,
the first metro PPP in So Paulo, is to open three new stations Fradique Coutinho, Oscar
Freire and Higienpolis. Odebrecht is due to start works on the Line 6 PPP also before
the end of the year. Finally, the So Paulo state government is to republish the tender for
the Line 18 monorail PPP following an intervention from the state audit court, which
suspended a prior attempt to auction the scheme.
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Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

JUNE 2014

6.0

METRICS THAT MATTER


LATAM CONFIDENTIAL INDICES

GOING UP

LatAm

Argentina

Brazil

Chile

Colombia

Mexico

Peru

32.8
30.0
27.2

25.7
18.6
11.5

31.0
30.1
26.1

47.4
52.9
47.2

41.4
38.7
40.5

26.5
19.4
18.5

57.4
59.4
57.0

48.9
45.3
42.8

39.5
31.7
23.7

51.6
50.0
46.6

53.9
48.0
48.6

55.6
52.9
54.5

41.2
34.4
32.9

60.9
62.7
60.3

67.0
66.3
65.3

77.0
78.3
75.5

69.8
66.5
64.3

65.1
68.4
65.1

65.1
64.7
63.9

62.9
64.2
65.9

55.8
57.6
57.9

54.5
56.1
54.0

63.3
64.2
62.6

52.1
52.1
48.4

56.0
58.5
60.0

52.0
55.5
52.8

56.8
60.2
59.8

51.7
55.4
54.3

56.6
46.4
45.9

62.1
40.6
35.9

57.2
54.5
53.0

54.4
45.6
45.0

54.7
43.7
44.4

54.5
34.4
37.0

57.3
51.9
50.8

50.5
51.7
51.9

32.0
35.1
38.2

55.7
58.8
54.6

50.4
52.0
52.9

48.7
54.1
53.0

45.3
40.8
47.3

64.6
66.3
68.0

Economic Confidence Index

46.4%

Increase in the price


of coffee, YTD

3Q13
4Q13
1Q14

Household Financial Situation Index


3Q13
4Q13
1Q14

Inflation Perceptions Index

5.5%

3Q13
4Q13
1Q14

YoY increase of
Mexican exports in
Apr-14

Inflation Expectations Index


3Q13
4Q13
1Q14

Spending Index
3Q13
4Q13
1Q14

Job Prospects Index

10.4%

Increase in
Colombian industry
in Mar-14

3Q13
4Q13
1Q14
Source: LatAm Confidential

MONEY AND BANKING


Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

M1 (local currency bn)


Jan-14
Feb-14
Mar-14
Apr-14
2013

GOING DOWN

26.9%

Decline in the price


of iron ore, YTD

475.1
433.0
441.4

492.1

313.0
315.4
309.3
308.6
344.8

22,317.8
22,062.2
22,120.8
22,482.3
22,100.2

78,985.1
79,944.9
80,633.2
80,080.2
83,788.6

2,456.0
2,440.3
2,447.9

2,513.0

63.1
63.3
64.1
63.3
65.7

1,239.1
1,273.2
1,319.5
1,339.8
1,199.7

616.4
572.4
578.1

637.1

1,928.4
1,959.2
1,970.7

1,953.2

83,967.8
83,626.3
83,739.4
83,614.7
82,459.1

310,061.9
318,519.1
317,992.4
318,152.0
311,178.6

9,620.2
9,692.4
9,751.3

9,505.1

130.4
131.0
131.0
131.3
134.0

1,259.6
1,295.0
1,339.1
1,362.7
1,220.1

944.9
935.1
947.4

944.1

3,818.5
3,831.1
3,875.2

3,820.2

140,020.4
141,306.6
141,671.9
142,038.8
139,978.1

338,625.4
347,393.5
347,164.9
346,105.0
340,197.4

11,641.3
11,814.5
11,882.0

11,564.0

n/a
n/a
n/a
n/a
n/a

1,259.6
1,295.0
1,339.1
1,362.7
1,220.1

n/a
n/a
n/a
n/a
n/a

10.50
10.75
11.00
11.00
10.00

4.25
4.00
4.00
4.00
4.50

3.25
3.25
3.25
3.50
3.25

3.50
3.50
3.50
3.50
3.50

4.00
4.00
4.00
4.00
4.00

n/a
n/a
n/a
n/a
n/a

27.7
27.5
27.0
28.2
30.6

360.9
362.7
363.9
366.7
358.8

40.0
40.0
41.0
40.3
41.1

22.2
22.1
22.1
22.5
43.6

84.0
83.6
83.7
83.6
174.9

140.1
141.3
141.7
142.0
65.7

21.5

M2 (local currency bn)


Jan-14
Feb-14
Mar-14
Apr-14
2013

M3 (local currency bn)

4.9%

Brazilian unemployment in Apr-14, down


from 5.8% in Apr-13

Jan-14
Feb-14
Mar-14
Apr-14
2013

Benchmark interest rate (%)*


Feb-14
Mar-14
Apr-14
May-14
2013

Foreign reserves ($bn)

1.1%

YoY decline in
Brazilian retail sales
in Mar-14

Jan-14
Feb-14
Mar-14
Apr-14
2013

*End of period figure


Sources: Thomson Reuters Datastream, central banks

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6.1

JUNE 2014

METRICS THAT
MATTER
MACRO AND CONSUMER
Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

GDP (YoY change %)


3Q13
4Q13
1Q14
2013
2014E

5.6

3.0
-0.9

2.2
1.9

2.3
1.7

5.0
2.7
2.6
4.0
3.2

5.1
5.0

4.2
4.6

1.4
0.7
1.8
1.1
2.9

4.5
5.1

5.0
5.3

1.1
1.0

1.3
-1.7

7.3
5.5

6.3
2.0

-1.5
-12.3
-5.0
0.4
-0.4

11.0
8.0

5.7
6.1

-3.7
-3.1

-1.8
4.5

4.6
1.8

5.9
6.1

-14.4
-16.6

-9.0
-3.3

5.7
6.2
6.3
5.9
6.0

3.2
3.5
4.3
3.0
3.1

2.3
2.5
2.7
1.9
3.1

4.2
3.8
3.5
4.0
4.1

3.8
3.4
3.5
2.9
2.7

53.3
54.8

52.7
52.0

25.9
27.8
28.9
15.0

6.1
8.0
8.8
5.1

n/a
n/a
n/a
n/a

1.3
2.6
3.4
-0.5

1.7
1.7
2.5
1.3

2.5
2.6
2.6
1.6

52.4

6.4
n/a
n/a
7.1
7.1

4.3
4.8
5.1
4.9
5.4

5.7
6.1
6.1
6.5
6.0

8.4
11.1
10.7
9.7
9.6

4.8
4.8
4.7
5.2
4.3

6.5
7.4
7.0
6.4
6.0

5.6
9.5
7.2

7.5

-0.5
-5.9
-4.0
-0.2
-2.4

4.7
-1.9

2.3
0.9

2.6
1.0

-0.3
1.7

4.0
10.4

-0.0
3.3

0.5
3.4

1.4
3.5

6.0

1.7
3.9

-0.3
-2.1

36.5

3.9
6.4
8.7
-1.1
4.3

0.8
6.7
3.7
-0.2
9.6

4.6
4.0
5.2
5.9
4.7

2.2
-0.3
-1.7
1.7

n/a
n/a
n/a
n/a
n/a

47
55
50
51
964

300
246
229
280
2,775

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a

56
52
56

698

n/a
n/a
n/a
n/a
n/a

1
1
2
1
99

Gross fixed investment (YoY change %)


3Q13
4Q13
1Q14
2013
2014E

6.1

3.0
-3.6

Consumer price index (YoY change %)


Feb-14
Mar-14
Apr-14
2013
2014E

3.4
2.6
1.8
10.9
28.7

Wholesale price index (YoY change %)


Feb-14
Mar-14
Apr-14
2013

Unemployment (%)
Dec-13
Jan-14
Feb-14
Mar-14
2013

Industrial production (YoY change %)


Feb-14
Mar-14
Apr-14
2013
2014E

Retail sales (YoY change %)


Dec-13
Jan-14
Feb-14
Mar-14
2013

Car sales (000s units)


Jan-14
Feb-14
Mar-14
Apr-14
2013

Inflation in Argentina is MoM % change in 2014. Inflation in Peru is only for Lima city. Inflation for Venezuela is only for Caracas city. Unemployment in Argentina is a quarterly figure. Retail sales in Argentina
and Chile are only supermarket sales.
Sources: Thomson Reuters Datastream, Latin American Consensus Forecast, central banks

FISCAL
General government revenue (GDP %)
2010
2011
2012
2013E
General government expenditure (GDP %)
2010
2011
2012
2013E
General government overall balance (GDP %)
2010
2011
2012
2013E

Argentina

Brazil

Chile

Colombia

Mexico

Peru

37.2
37.4
40.3
42.6

37.2
36.6
37.2
37.1

23.5
24.7
23.9
23.0

26.2
26.9
28.4
27.7

22.8
23.2
23.6
23.4

20.0
20.9
21.7
21.1

38.5
40.9
44.6
46.0

39.9
39.1
40.0
40.5

23.8
23.2
23.3
23.6

29.5
28.9
28.2
28.7

27.2
26.6
27.3
27.2

20.3
19.1
19.6
21.0

-1.4
-3.5
-4.0
-3.5

-2.7
-2.5
-2.8
-3.3

-0.3
1.4
0.6
-0.7

-3.3
-2.0
0.2
-1.0

-4.4
-3.4
-3.7
-3.8

-0.3
1.8
2.0
0.5

Source: IMF

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The material in this publication is protected by international copyright laws. Our Subscriber Agreement and copyright laws prohibit any unauthorised copying or redistribution of this publication or parts of
it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

6.2

JUNE 2014

METRICS THAT
MATTER
EXTERNAL ACCOUNTS
Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

5.4
5.3
6.4
83.0
81.9

15.9
17.6
19.7
242.2
248.4

6.6
7.3
6.7
77.4
77.2

4.3
4.4

58.8
62.0

32.5
32.2
32.8
379.1
404.1

3.0
2.9

41.8
43.4

90.4
85.2

5.3
5.2
5.5
74.0
70.9

18.1
17.5
19.2
239.6
243.9

5.3
5.6
5.7
75.0
74.5

5.0
4.9

59.4
60.3

32.0
32.5
33.2
380.3
411.7

3.0
3.4

42.2
43.7

53.6
51.1

0.1
0.1
0.9
9.0
11.0

-2.2
0.1
0.5
2.6
4.5

1.3
1.7
1.0
2.4
2.7

-0.7
-0.5

-0.6
1.7

0.5
-0.3
-0.4
-1.2
-7.6

0.0
-0.5

-0.4
-0.3

36.8
34.1

-1.1
-1.7

-4.3
-2.6

-17.1
-21.0
-25.2
-81.4
-78.5

-3.4
-2.4
-0.8
-9.4
-8.4

-3.8
-3.4

-12.7
-13.0

-5.5
-4.7
-4.5
-21.5
-24.2

-2.5
-2.2
-3.1
-10.1
-9.9

-4.1

10.3
10.3

n/a
n/a

13.8
20.3
14.2
65.3
59.9

n/a
n/a

30.3
19.0

4.9
4.2

15.6
15.4

3.4
6.5
5.8
15.4
29.1

2.0
0.8
2.3
12.2
10.9

0.4

3.2
2.8

Exports ($bn)
Feb-14
Mar-14
Apr-14
2013
2014E
Imports ($bn)
Feb-14
Mar-14
Apr-14
2013
2014E
Trade balance ($bn)
Feb-14
Mar-14
Apr-14
2013
2014E
Current account ($bn)
3Q13
4Q13
1Q14
2013
2014E
FDI ($bn)
3Q13
4Q13
1Q14
2012
2013E

12.5
7.7

Sources: Thomson Reuters Datastream, Latin American Consensus Forecast

COMMODITY PRICES
Coffee
(c/lb)

Copper
($/metric tonne)

Iron ore
($/metric tonne)

Gold
($/troy ounce)

Oil
($/bbl)

Orange juice
(c/lb)

Soyabeans
($/bushel)

Sugar
(c/lb)

May 27
157.3
2 wk prev
162.8
Change (%)
-3.4
Change YTD (%) 46.4

7,017.5
6,887.0
1.9
-4.9

98.1
103.0
-4.8
-26.9

1,268.6
1,297.0
-2.2
5.0

104.2
101.7
2.4
5.7

158.1
161.8
-2.3
15.8

15.3
14.9
2.1
17.1

17.9
18.5
-3.2
8.0

Argentina
(peso)

Brazil
(real)

Chile
(peso)

Colombia
(peso)

Mexico
(peso)

Peru
(nuevo sol)

Venezuela
(bolvar)

11.8
10.8
9.5
18.0

2.2
2.2
1.2
-5.2

554.0
551.4
0.5
5.8

1,920.4
1,920.0
0.0
-0.6

12.9
12.9
-0.4
-1.6

2.8
2.8
0.3
-0.2

6.3
6.3
0.0
0.0

Source: Thomson Reuters Datastream

DOLLAR VS CURRENCIES
May 27
2 wk prev
Change (%)
Change YTD (%)
Source: Thomson Reuters Datastream

EQUITY INDICES
Argentina (Merval)

Brazil (Bovespa)

Chile (IGPA)

Colombia (IGBC)

Mexico (IPC)

Peru (IGBL)

Venezuela

May 27

7,571.6

52,172.4

19,222.7

13,636.7

41,959.0

15,770.3

2,177.0

2 wk prev

6,866.9

53,907.5

19,341.4

13,690.7

42,236.8

15,815.9

2,176.0

Change (%)

10.3

-3.2

-0.6

-0.4

-0.7

-0.3

0.0

Change YTD (%)

40.4

1.3

5.5

4.3

-1.8

0.1

-20.4

Source: Thomson Reuters Datastream

PDF distributed to richard.lapper@ft.com


The material in this publication is protected by international copyright laws. Our Subscriber Agreement and copyright laws prohibit any unauthorised copying or redistribution of this publication or parts of
it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.

6.3

JUNE 2014

METRICS THAT
MATTER
JP MORGAN EMBI+ BONDS
Argentina

Brazil

Colombia

Ecuador

Mexico

Panama

Peru

Venezuela

846
774
9.3
4.7

216
205
5.4
-3.6

153
146
4.8
-7.8

378
340
11.2
-28.7

147
139
5.8
-5.2

177
169
4.7
-11.1

152
137
10.9
-4.4

1,033
1,013
2.0
-5.5

179.1
187.4
-4.5
5.7

992.8
992.1
0.1
7.2

516.7
515.0
0.3
7.0

823.7
826.5
-0.3
4.7

589.3
588.3
0.2
7.4

1,139.6
1,137.9
0.2
8.9

1,037.3
1,042.1
-0.5
8.2

1,044.7
1,047.2
-0.2
11.8

Stripped spread values


May 27
2 wk prev
Change (%)
Change YTD (%)
Total return values
May 27
2 wk prev
Change (%)
Change YTD (%)
Source: Thomson Reuters Datastream

FRONTIER COUNTRIES
Bolivia
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Costa Rica
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Dominican Republic
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Ecuador
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
El Salvador
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Guatemala
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Honduras
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Nicaragua
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Panama
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Paraguay
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)
Uruguay
GDP (YoY% change)
Consumer price index (YoY% change)
Current account ($bn)

2009

2010

2011

2012

2013E

2014E

3.4
0.3
0.8

4.1
7.2
0.9

5.2
6.1
0.5

5.2
5.3
2.0

6.8
6.5
1.0

5.5
6.4
1.0

-1.0
4.1
-0.6

5.0
5.8
-1.3

4.4
4.8
-2.2

5.1
4.5
-2.3

3.5
3.7
-2.6

3.0
5.4
-3.0

3.5
5.8
-2.3

7.8
6.2
-4.3

4.5
7.8
-4.4

3.9
3.9
-4.0

4.1
3.9
-2.6

4.1
4.5
-2.3

0.6
4.3
0.2

2.8
3.3
-1.6

7.4
5.4
-0.2

5.0
4.2
-0.2

4.5
2.7
-1.1

4.2
3.5
-1.5

-3.1
0.1
-0.3

1.4
2.1
-0.6

2.2
5.1
-1.1

1.9
0.8
-1.3

1.7
0.8
-1.5

2.0
2.2
-1.5

0.5
-0.3
0.3

2.9
5.4
-0.6

4.2
6.2
-1.6

3.0
3.4
-1.4

3.7
4.4
-1.5

3.4
4.3
-1.8

-2.4
2.9
-0.6

3.7
6.5
-0.8

3.7
5.6
-1.5

3.3
5.4
-1.7

2.6
4.9
-1.7

3.1
6.6
-1.5

-2.2
0.9
-0.8

3.6
9.2
-0.9

5.4
8.0
-1.3

5.2
6.7
-1.4

4.6
5.5
-1.3

4.5
6.2
-1.4

3.9
1.7
-0.2

7.5
5.0
-2.8

10.8
6.4
-3.8

10.7
4.5
-3.3

8.3
3.6
-4.8

6.6
3.2
-4.1

-4.0
1.9
0.7

13.1
7.2
-0.7

4.3
4.9
-0.3

-1.2
3.9
0.1

14.4
3.8
0.6

4.9
4.9
0.7

2.2
6.1
-0.4

8.9
7.0
-0.7

6.5
8.6
-1.4

3.9
7.5
-2.7

4.4
8.5
-3.1

3.3
8.3
-2.5

Source: Latin American Consensus Forecasts

PDF distributed to richard.lapper@ft.com


The material in this publication is protected by international copyright laws. Our Subscriber Agreement and copyright laws prohibit any unauthorised copying or redistribution of this publication or parts of
it, including forwarding by email, to any individual or other third party. Any violation of these restrictions may result in personal and/or corporate liability. (c) The Financial Times Limited 2014. "LatAm
Confidential", "FT" and "Financial Times" are trade marks of The Financial Times Limited.
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