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Colombia enjoys a winner but for how long, should the investors move fast ?

Tomas Ayuso/Bloomberg


Ivan Duque, Colombia's president-elect, speaks during an election event at the party's headquarters in Bogota, Colombia, on June 17, 2018.  Analysts say political left is gaining strength in country. Family-owned businesses being urged to tap capital markets now

By Daniel Cancel and Pablo Rosendo Gonzalez

BOGOTA
Petroleumworld 06 27 2018

The relief among Colombia's business community and investors looks to be short lived following Ivan Duque's decisive victory in the presidential runoff last week.

While stocks and the currency held on to their small gains for the year after the results, there are signs that both the government and market should front-run any reforms and plans to raise capital. In talks with a dozen bankers, traders, strategists and analysts in the days before and after the vote, a common thread emerged: While investors may have dodged a bullet this time around, the odds are increasing that Colombia will see a leftist government soon and possibly as early as 2022.

The thinking is that Duque's opponent, former guerrilla and Bogota Mayor Gustavo Petro, will be in a stronger position to win the next time around after getting 42 percent of the vote, something of a watermark for leftist candidates in the politically conservative nation that's also the most unequal country in the Americas after Haiti. Support from the poor and progressives who are seeking greater social protection and economic diversification may continue to grow as Petro leads the opposition from Congress.

Colombia's reinstated limit of one four-year term for presidents gives Duque a short runway to push through fiscal, tax and pension overhauls after taking office Aug. 7 given that jostling for the next campaign will begin roughly halfway through his tenure. It also suggests that companies mulling asset sales, initial public offerings or overseas bond deals may want to move sooner rather than later, according to the market participants who spoke to Bloomberg and asked not to be identified because they weren't authorized to speak for attribution.

This sentiment is particularly high in Bogota, the capital, where Petro won the presidential vote. In Medellin, home to about half of the companies on Colombia's Colcap stock index, Duque won in a landslide. The mood is more upbeat and banks are busy lining up deals.

A pipeline of debt issuance, equity offerings and merger-and-acquisition activity looks promising for the second half of 2018. Grupo Energia Bogota is expected to raise as much as $1.2 billion in a follow-on transaction as soon as Aug. 16. Itau Colombia issued local bonds last week and Frontera Energy , a Canadian-listed energy producer with fields in the South American nation, sold notes abroad.

Some companies were waiting for the election and political risk to pass to come to market, and family-run conglomerates are also asking advisers about whether now is finally the right time to seek a strategic partnership or divestments. Consolidation in infrastructure and health care will likely surface as banks have already been hired. Nine projects that are part of the so-called 4G highway construction efforts may obtain about $4.5 billion of financing this year.

The biggest challenge in the local capital market might be persuading the many successful and growing private companies to sell shares and go public. Explanations for holding off ranged from complex tax structures to worries that the disclosure requirements would reveal the scope of families' wealth and invite kidnapping.

A deal with the Pacific Alliance means pension funds from Mexico, Peru and Chile can invest in Colombian assets tax-free, potentially bolstering demand for anyone who comes to market. Many companies are sitting on billions of pesos in real estate that could be monetized. New REIT-like structures are being built and could hit the market by the end of 2018.

Yet phrases like “Colombians are typically buyers not sellers,” and “companies ask what they would do with all of the cash from a transaction” permeated the conversations. The market dominance of pension funds and the lack of paper to invest in means the local capital markets are limited in many ways.

Regardless of the challenges and medium-term risks, Colombia is in an enviable position in the region. Growth is forecast to quicken to about 2.5 percent this year and 3 percent in 2019. Higher oil prices and Duque's victory have made the peso the best performing currency in emerging markets this year and inflation is under control with a vigilant central bank possibly prepared to begin hiking rates at the start of next year.

The surest sign of a serious, responsible society besides the fact that the election result was out one hour after the polls closed? No one canceled meetings after a surprise 2-1 loss to Japan in the World Cup debut.

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Story by Daniel Cancel and Pablo Rosendo Gonzalez; With assistance by Matthew Bristow, and Andrea Jaramillo from Bloomberg.


bloomberg.com 06 26 2018

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