Colombia, which has become Latin America’s fastest growing economy, also has a fast growing pipeline of transactions and is attracting international interest, according to domestic bankers. The economy grew by 6.4% in the first quarter of 2014, up from 5.3% in the last quarter of 2013 and this growth is leading to a rise in the number of companies that could realistically access the international capital markets.
“The last few years have seen a lot of Colombian companies gain the scale needed to access the international markets and we also expect more interest from international investors in Colombian opportunities,” says Ricardo Jaramillo Mejía, head of Bancolombia’s investment banking business, Banca de Inversión Bancolombia (BIB). “However, local investors are – and will continue to be – a strong source of demand.”
Jaramillo Mejía says retail investors have traditionally been a leading source of demand for equity transactions in the country. However, BIB led on Bancolombia’s $1.3 billion follow-on in March and 41% of that transaction went to international accounts. Colombian institutional investors made up 36% of the book and retail investors 23%, which although a lower share than in many previous large equity offerings from Colombian companies, was still critical, according to Jaramillo Mejía, in grounding the deal at a volatile time for international equity markets.
Colombia’s liquid local debt capital markets provide funding for most of Colombian corporate debenture needs but some standout deals from the larger companies show a strong foundation of interest also in Colombian credit. Ecopetrol’s $2 billion deal in May attracted more than $11 billion in orders. International banks and investors are also exploring a wide range of financing opportunities in a country that has severe infrastructure needs.
The re-election of President Santos has reinvigorated international banks’ interest in the country’s huge $26 billion-plus ‘4G’ toll roads concessions project, especially as the government has given in to international pressure and increased the proportion of dollar denominated financing for the projects to 50%.
Aware of domestic capacity issues if required to finance the 40 projects, the Colombian government and the infrastructure agency, ANI, have focused on creating supporting legal documentation that will allow sponsors to refinance construction projects through the international and domestic capital markets. Jaramillo Mejía says the bank is negotiating with domestic and international banks, institutional investors, sponsors and the government to move the projects towards structures that can access capital markets financing.
“I recognize that the government has made some very important adjustments [to the financing regulations] and we are in the middle of negotiations with institutional investors to bring them in to finance these projects,” says Mejía. “Institutional investors will, ideally, not only refinance projects after construction but they are also interested in seeing if they can get involved with projects during the construction. That is a huge step, because before all these discussions were just with commercial banks. If we are able to bring institutional investors to the table to fund those transactions then we have reached the point where banks can finance the construction and then we can perform a take out in the capital markets – which will be the fuel that we need to fund all these projects.”