COLOMBIA : AN INVESTMENT OPPORTUNITY FOR PRIVATE EQUITY FUNDS Bogotá D.C. 2012
OUTLINE Who We Are Latin America and Colombia, the worlds source of development Evolution of Private Equity in Latin America and Colombia Investment opportunities for Private Equity funds in Colombia Economic Sectors
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ECONOMIC TRENDS IN LATIN AMERICA AND COLOMBIA
Latin America is the second-highest growing region in theShort-Term (ST) and third-highest in the Long-Term (LT) (LT): Long-Term: Nominal GDP Variation 2000 - 2010 (ST): Short-Term: Nominal GDP Variation 2009 - 2010 LT ST LT ST +87% +0% +470% +21% LT ST LT ST +51% +5% +112% +16% LT ST +126% +20% LT ST +148% +20%Source: EIU North America Middle East and Sub-Saharan Africa Western Europe Latin America Asia and Australasia Russian Federation
Latin America will continue to increase its nominal GDP, alwaysranking higher than Russia, the Middle East and sub-SaharanAfrica. 6000 NOMINAL GDP (US $ Billions) 2000 – 2014* 5000 +126% 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Proy. Proy. Proy. Proy. 2011 2012 2013 2014 LATINAMERICA MIDDLE EAST AND SUB-SAHARAN AFRICA RUSSIAN FEDERATION Source: EIU
Colombia, with higher growth than LatinAmerica and the world, playing a positive role in the regions performance.
Colombia is the third largest contributor to growth inLatin America. Although Argentina represents a larger share of Latin Americas GDP, its 23% growth was lower than Colombias Countries contribution to the growth of the GDP in Latin America (%) Share of the GDP 2000 – 2010 (+126%) 5% 7% LATINAMERICA 126% Variation 1% 2000 - 2010 3% BRAZIL 74% 47% +224% +54% MEXICO 18% +189% COLOMBIA 10% +170% CHILE 7% 8% +107% VENEZUELA 6% 5% +188% PERU 5% +30% ARGENTINA 4% +264% ECUADOR 2% Source: EIU
Performance higher than Latin America and the World isexpected over the next few years. Growth of Colombias GDP vs. Latin America 2001 - 2010 (%) 08 06 04 02 00 -02 -04 Colombian growth Latinamerican growth World growth Source: ANDI (National Business Association of Colombia), EIU
Colombia, The C in the CIVETS “The new BRICs are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (CIVETS). They are countries with major populations, dynamic, diverse economies, political stability and each of them has a brilliant future. Any company with global ambitions will have to take immediate action in these markets.” Michael Geoghegan, CEO HSBC April 26, 2010 in his speech to AmCham Hong Kong
Three of the most important rating agencies have granted the“Investment Grade” to Colombia The three raters agree on the good economic and financial performance of the country, highlighting: Its ability to deal with internal and external shocks Countrys long history of timely debt payments Increased macroeconomic policy credibility Security concerns have been waning 31 – May - 2011
Economic achievements in 2011 • 1 mill. barrels • 5.9% Growth • 2 million new per day of oil Rate in 2011 jobs* and gas production 1.2% higher than Latin Fourth largest oil Unemployment rate American average producer in Latin (9.3%** 2011) growth (3.6%) America • US$62.6 bn in • US$13.2 bn in exports G&S • 1.8% GDP FDI. (4% of (18.8% of Public Deficit GDP) GDP) Record in Colombian Record in Colombian Non-Financial Public history history Sector balance *Three-Month Moving Average August 2010-December 2011.**Three-Month Moving Average unemployment rate December 2011.
Colombia among countries with low risk of politicalinstability Risk of Political Instability, 2011 7/ Bureaucracy, 2011 8/ Scale 0-10. 0: high – 10: low Scale 0-10. 0: it is an obstacle – 10: it is not an obstacle Chile 9,4800 Country Rating Brazil 8,1700 Chile 4.82 Colombia 6,9600 Colombia 3.05 Peru 6,8400 Mexico 2.26 Mexico 5,5900 Peru 1.95 Argentina 4,9700 Brazil 1.62 Venezuel Argentina 1.44 1,0700 a Venezuela 0.59Source: IMD World Competitiveness, 2011. Ranking consisting of 59 countries.7/ The risk of political instability is very low.8/ Bureaucracy is not an obstacle for business activity.
FDI Increase in Non Traditional sectors FDI in Colombia by Sectors FDI in Colombia by Non Traditional Sectors 2009 - 2011 2009 - 2011 Transport, Construction Agribusiness Agribusiness Storage and 4% 1% 2% Communications 5% Construction 10% Commerce, Manufacturing 6% Transport, Rest., and Financial Storage and Oil Communication Hotels Services 37% 8% 14% 33% Commerce, Rest. & Hotels 12% Manufacturing 18% Financial Services Mining 23% 27% % Share by total FDI of positive flows by origin country, without reinvesting profit and not including the petroleum sector. Total investment 2009 – 2011: US$ 27,629 million. Source: Banco de la República.
Positioning Colombia as an export platform: 11 free trade agreements(FTA) with 48 countries allowing preferential access to over 1,500million consumers In Force Signed In Negotiation Future IN FORCE SIGNED IN NEGOTIATION FUTURE • CAN (Peru, Ecuador y Bolivia) • EFTA (Iceland, Liechtenstein, and • South Korea • Japan • MERCOSUR (Argentina, Paraguay, Norway • Panama • Australia Uruguay and Brazil) • European Union (Signature) • Turkey • New Zealand • Chile • Costa Rica • G2-Mexico • Dominican Republic • North Triangle (Honduras, Guatemala • Gulf Community y El Salvador) • Switzerland • EE.UU y Canada
Growing young population With the second largest Spanish speaking population, Colombia concentrates almost the 80% of its population between 20 and 70 years old Population Population Pyramid by Sex and Age (Millions of People) - 2010* Group in 1985 – 2005 - 2020120 112,5100 80 60 46,9 40,5 40 34,0 30,0 28,6 17,1 20 14,0 0 Source: Ministerio de la Proteccion Social - EIU
Colombian economy: larger than that of Chile, Ireland, Malaysia, Egypt,Singapore and New Zealand, among others Nominal GDP US $ Billions - 2010 289 242 238 229 224 223 218 214 207 203 196 154 140 138 130 104 92 36 Source: EIU (Economist Intelligence Unit) (10 Oct 20)
Colombias GDP per capita GDP percapita (constant dollars 2011) 7.000 USD, 10.200 in PPP Lower middle income Source: Raddar. Calculations: Ministry of Finance and Public Credit.
According to international standards, Colombia is part of thegroup of upper-middle-income countries since 2005 US$ Per-Capita National Income – Atlas Methodology (Current USD) GDP Per Capita 7000 US$ 9.276 at PPP 6000 Upper Middle Income 5000 4000 3000 Lower Middle Income 2000 1000 Low Income 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Ministerio de Hacienda y Crédito Público - EIU
Real Consumption by Type of Good Non Durable Goods US$ Millions SECTOR 2000 2005 Food, Beverage and Tobacco 19.406 30.941 Medical Expenses 2.272 4.587 Holidays and Amusement 821 1.171 TOTAL 22.498 36.699 63% TOTAL EXPENSES 2010 US$ 103.693 Millions Durable Goods US$ Millions SECTOR 2000 2005 Clothes and Shoes 3.086 4.484 Furniture 3.171 5.176 Equipment and Accessories 1.133 2.412 TOTAL 7.391 12.072 64% Source: DANE 1US$= 1900 COP$
Evolución Evolution of Private Equity in Latin America and Colombia
Private Equity Funds Migration towards EmergingMarkets In 2011, Private Equity Funds (PEF) will present a morepronounced migration toward Emerging Markets such as Asia, Middle East , East Europe and Latin America. Within the current crisis and instability in American and European markets, the opportunity of investments in Colombia grows in sectors as Infrastructure, Telecommunications and Industry.
Private Equity trend towards EM, specifically LATAM807060 The attractiveness of emerging50 markets for General Partners40 investment for this year.3020 According to this, Latin America is10 0 becoming more attractive for Brazil China Latam (exc India Russia investors than a year ago Brazil) Russia 2010 Survey 2011 Survey India LP Commitments of investments in Emerging Markets, related with Latam (exc Brazil) corporative strategy China About 11% of new investors expect to begin investing in Latin America in Brazil the next 2 years. -20 0 20 40 60Source: Emerging Markets Private Equity Survey. EMPEA – Coller Capital Decrease or Stop Investing Expand Investment Beging Investing
Private Equity Industry In Colombia
Colombia: An improved PE/VC environment Colombia is the only country in the region showing a steady improvement in its PE environment Regional Country Ranking 1 Chile 2 Brazil 3 Mexico 4 Colombia 5 Uruguay 6 Trinidad&Tobago 7 Costa Rica 8 Panama 8 Peru 10 Argentina 10 El Salvador Currently ranked No 4 among Latam countries, an Source: Lavca 2011 Scorecard * (1-100 where 100 = best) increase 7 positions since 2008
Colombia’s greatest strength when compared to the region iscorporate governance policies Initiative developed in 1999 in order to promote competitiveness and self regulation “Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals” Sir Adam Cadbury Strong Legal Corporate Governance and Development Colombia Guide Framework and Country Code Law 694 / 05 Sort out corporate Resolution 271 / 08 issues Decree 2955 / 10 Main Work Targets: Partnership with Swiss Government , Corporate Governance Consulting Bancoldex and PEF to create a University Support (Research and Formation) corporate governance culture in the Banking Support (Reducing Company Risk) sector
A growing market opportunity for new source of capital with local pension funds and insurance companies • Changes in regulation allowed Colombian pension funds and insurance companies to invest in private equity. • Since 2011, they entered officially into the new multi-fund system allowing a higher exposure to private equity. => Moderate fund can invest up to 10% in private equity funds (5% local and 5% foreign) AUM of Mandatory Pension Funds in Colombia AUM of Mandatory Pension Funds by Multifund 2007 - 2010 (USD MM) 2011 (USD MM) 51.000 feb- 51.513 246 289 11 50.000 209 2.2022010 52.053 49.000 163 2.257 Higher Risk 2.113 Conservative2009 42.051 48.000 2.072 Moderate 47.0002008 30.726 Average Annual 48.191 Growth of 29% in 47.863 46.000 46.917 47.209 4 years2007 26.905 45.000 0 10.000 20.000 30.000 40.000 50.000 60.000 March April May JuneSource: Colombia Financial Superintendence report, december September 2011
Insurance companies Reserves of life and general insurance Some of them are already investing companies in Colombia (USD MM) in private equity funds such as: mar- 1.585 11 974 1.5232010 914 However, there are a total of 22 1.3802009 854 insurance companies in Colombia allowed to invest such as: 1.2412008 796 7812007 738 0 200 400 600 800 1.000 1.200 1.400 1.600 Life Insurance General InsuranceSource: Colombia Financial Superintendence report, december September 2011
Government Programs to promote the development of thePrivate Equity and Venture Capital Industry Bancoldex Capital Program is an initiative designed to promote PEF/VC industry development in Colombia through two components Investment program Non Financial Support •Bancoldex invests in private Contribute to improve the equity and venture capital PE/VC ecosystem in Colombia. funds as a Limited Partner. Apps.co is a government strategy to promotes mobile Internet demand in Colombia through Apps development. It will count with an initial investment of US$36 million to conform a Risk Private Equity Fund for developing local initiatives with technical apps.co assistance to Colombian Developers, Investors and General Partners.”
An increased in the numbers of PE/VC In 2011, the number of PEF Closed increased up to 20 with capital commitments of USD 2.131 M Private Equity Funds in Colombia Closed Funds divided by sector 2011 2005-2011 4 20 686 18 700 82018 600 49516 500 114 12 400 3501210 8 300 2 8 147 1 5 200 1 1 1 6 100 40 37 26 4 2 2 8 2 0 0 2005 2006 2007 2008 2009 2010 2011 No. funds closed Capital Commitments Source: Bancoldex Capital
International players also investing in the country International General Partners International Limited PartnersSome International Private Equity funds with direct investments in Colombian companies: 2010: investment in Credivalores-Crediservicios, S.A.S. (“Credivalores”), the leading non-bank provider of consumer loans in Colombia. Investment: US$ 25 Millions 2011: Acquires 3 safety companies to cover local and regional market through Capital Safety Investment: US$ 55,9 Millions 2011: Acquires Terranum, a Colombian real estate developer Investment: US$ 75 Millions
Investment opportunities for Private Equity Funds
Ways to invest Establishing local private equity funds to invest in the region Investing and/or Co-investing in Private Equity Funds established in Colombia Investing directly in Colombian companies
Establishing local private equity funds to invest in the region Colombia offers an excellent geographic location that allows to easily access to investment opportunities y Latin America According to LAVCA 2011, Colombia´s strengths when comparing to the region in terms of it´s PE/VC industry are: Attractive regulatory framework for the creation of PE/VC funds Minority Shareholders protection Restriction for the local institutional funds to invest in private equity Requirenments in terms of Corporate Government
Investing and/or Co-investing in Private Equity Fundsestablished in Colombia 23 funds in Colombia with USD 2,2 Billion of capital raised Closed Funds (USD 2.2 billion) Funds in fundraising (USD 467 million) Inversor 3 Inversor 3 Cine Hispanoamericano 8 Cacao 11 Energético Andino 15 Progresa Capital 22 Forestal Colombia 26 Valor Forestal 11 Valorar Futuro 29 Brilla Colombia 30 Bamboo Finance 10 SEAF FTC 34 Tribeca Natural Resources 40 Tribeca Homecare Fund 40 IVG 30 Escala Capital 44 Nexus Infraestructura I 57 Access SEAF MAS 69 Tagua Capital 30 Fintra - Darby 88 Altra FCP I 106 MCD²F 35 TEKA 104 Kandeo 129 Tribeca Fund I 132 Axon-Amerigo 40 Tribeca Energy Fund 133 Infraestructura Ashmore 170 EPM 50 Aureos 183 Hidrocarburos I, II y III 350 Infraestructura Brookfield 389 Altra II 250 0 200 400 0 100 200 30038 Source: Estimated data Bancóldex S.A Sept 2012
Exposure to multisectorial opportunities through investments in Colombian companies Colombia GDP by Sector 2010 Agriculture 8% Mining and quarrying About 200 ThousandSocial service 10% activity are Big Companies 20% Industry AROUND 2 0,3% MILLION COMPANIES Electricity, IN COLOMBIA gas and water About 1,8 million 5% Financial Companies are SME´s. Services 24% Construction 9% 48% Industry Trade, hotels , Transportation restaurants 9% 15% 52% Retail Source: Source: ACOPI
Where, the big ones are starting to grow internationally US$ Millones7.000,0 6.503,76.000,05.000,0 Country Ranking 4.662,0 (2000-2010)4.000,0 1. USA3.000,0 3.088,2 2. England 3. Panama2.000,0 2.254,0 4. Brazil 937,7 5. Peru1.000,0 6. Guatemala 325,3 912,8 7. Mexico 142,4 8. Chile 0,0 9. Ecuador 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10. Venezuela Montage of the first power transmission Acquires the 60% of the Peruvian Electric system of 500.000 volts in Peru. Company Cálidda. Investment: US$130 Millions Investment: US$ 111 Millions Acquires all ING company portfolio in Acquires the 100% of Banco Chile, México, Peru, Uruguay y Colombia. Centroamericano. Investment: US$ 3.763 Millions Investment: US$ 1.900 Millions Source: Banrep -Dinero
MILA: Merging of the Chilean, Peruvian and Colombian StockExchange Markets as an exit strategy MILA will become the biggest stock exchange market by number of issuers in Latin America Total Volume traded H1 2012 - USD $49.52 billion A total of 550 Valuation variation H1 2012 Companies IGBVL (Peru) 3,77% , COLCAP (Colombia) 4,36% e IPSA (Chile) 5,33% . With expected foreign investment growth, trades will multiply by 5 in forthcoming years Source: BVC
Five Innovation Locomotives Mining Infrastructure Innovation The Innovation Locomotives: All sectors of Housing the economy have potential Agro to go forward in the knowledge path (Juan M. Santos, 2010)
Productive Transformation Program Encourage and improve Promote development of production of competitive NEW & EMERGING products and services SECTORS ESTABLISHED SECTORS Business Process Outsourcing and Off shoring BPO&O Promote value added, innovation & development in AGRIBUSINESS SECTOR Cocoa and Chocolate Palm and vegetable Shrimp Farming Cattle Confectionery Oil
Infrastructure Opportunities National Highways 2000 2010 2017* Number of Highways 11 23 26 Granted Km. Of Highways 2.002 4.009 6.604 Granted Km. Of Double Track 50 860 3.487 Air Traffic Indicator 2000 2009 2019* Regional Docks National Passengers (MM) 7.7 10.7 >15 National Load (Ton) 115.522 123.065 >130.000 International Passengers (MM) 2.9 5.6 >11 International Load (Ton) 390.584 481.129 >600.000 2002 2003 2004 2005 2006 2007 2008 National Railroads INTERNATIONAL TRAFFIC FLUVIAL CABOTAGE INTERNATIONAL TRADE Project Features Scope Est. Length of Regional Port Societies No. Of Port Year Execution Central Construction variant La Current Concessions 5 2008 Corridor of 1.045 km – Railway Concession for 30 Years Dorada; M&O Chiriguaná – 2011-2014* New Developments 5 2010 – 2014* System Bs.As.; Rehabilitation New Tracks: 460km TOTAL 10 Corridor to Inland Coal Carare Train Exploitation Rehabilitation: 33Km 2009-2014* Servitude: 62km * DNP Estimations
Opportunities in the Colombian Oil Goods andServices Sector The oil sector is Colombia is going strong. There are opportunities in the Oil Goods and Services sector for growth and improvements on an international scale. Growth is projected in terms of the number of wells explored- 570 by 2014- and extraction- to nearly one million barrels of oil per day (2012). The Cartagena Refinery will enter operation in 2013 with a capacity of 165,000 BDP. The demand for goods and services at this facility as well as the Barrancabermeja Refinery will increase. Various investment opportunities exist in producing high-performing, high-quality goods and developing high- tech oil services. Caribbean Zone A regional goods and services exportation platform can Eastern Central Zone be established for meeting the needs of the Venezuelan, Southern Central Zone Bogotá - National Provider Peruvian and Ecuadorean markets. New Exploratory Areas
Regional Opportunities Health Services There are 5 metropolitan areas in Colombia with more than 1.8 million residents. These regions have graduated more than 18,000 physicians and 9,000 nurses in the past 5 years. There are another 5 mid-sized cities with populations greater than 500,000 residents.
Opportunities in Information Technologies and BPO&O Sector BPO Opportunities to create Shared Service Centers for Latam. Opportunities for Outsourcing Companies providing services of Costumer Care, ESO, FAO, HRO, and R&D Software and IT Services Opportunities for development and integration of IT services and Applications. Opportunities for M&A and Software companies Opportunities for Data Centers Telecommunications Opportunities to provide Telecommunication Services in growing markets, improving its Telecommunication Infrastructure.
Opportunities in Agribusiness Sector Colombia has competitive advantages such as land availability, wide water sources and high exporting potential. • Biofuels opportunities : More than 7.3 million hectares ideal for biofuels production. High yield in Sugar Cane and Oil Palm. • Forestry Opportunities: species with elevated profit margins and short biological cycles. • Diary Opportunities: Fourth milk producer in Latin- American. Third biggest market in Latin- American.
Opportunities in Tourism Sector Opportunities for MICE tourism: Outstanding behavior of Colombian economy: Historically Colombia has enjoyed a remarkable economical stability. During the last decade Colombian GDP has shown superior increases than world´s average, and has been the less unsteady of South America. Eight cities with more than 500.000 inhabitants established as important commercial, development and business areas. More than 2.500 multinationals in Colombia In four years, Colombia scaled 16 positions at ICCA Ranking reaching position 34th on 2010. Leisure Tourism Opportunities: International tourism in Colombia, grows three times faster than world average. Multi-destination country: Andean Country, Caribbean Country, Amazonian Country and Pacific Country. Multiple awards ad a tourism destination such as: “Revelation Destination”. Wanderlust Magazine. “Destination To Discover”: Lonely Planet. “One of the destinations to visit on 2010” NY Times. Highest biodiversity country per squared meter11.600 new rooms between 2004 y 2010. 12 UNESCO acknowledgements as world heritage.Investment on 2010 was three times bigger than investment on 2004
Mining and Electricity Sector Opportunities Electric Generation • Current Capacity: 13.455 MW Mining • New capacity of 3.445 MW will be installed within 2012 and 2018 by Public and Private Companies through Concession Contracts. • To Achieve this goal, sector will demand investments close to US$ 10Exploration 22 millions hectares Billions.Production 2 millions hectaresTechcnical Areas of 17 millions hectaresEvaluation Hydrocarbons• Total Investment in Exploration and Production for the next 5 years is US$ 24 Billions: Piping US$ 10 Bln, Refining US$ 8 Bln, and Biofuels US$ 700 Millions Estimated investments in Mining• Potential of Reserves is estimated sector for the next 5 years is US$ between 8.960-138.631 (MBPe) 4,3 Billions
Housing and Innovation Opportunities Housing Innovation •Increase participation of Science and Technology in the national GDP. Target for 2019 is 2%. •Increase the number of Patents per 100 thousand inhabitants. •Challenge in Professional Education, increasing almost 4 times 2006 records for 2012.• Confidence Index has been improving since 2008, allowingpeople take decision to obtain a brand new house.•Sector is divided into 2 big areas, Social and RegularHousing, both increasing sales in 69% between 2004 and2010.•According to DNP, Housing sector will increase approx 10%between 2010 and 2011. Target: One million houses in 2014.
Colombia offers… Growing domestic market without signs of saturation Increasing export trend, covering global and regional makets in all sectors Corporative Governance policies among local companies Quality and availability of human resource to all economy levels Strong legal support and incentives to promote Private Equity in Colombia