Five hundred years ago the Spanish entered Latin America in search of gold. Today they return in search of equity, not only in the form of takeovers and acquisitions, but also through Latibex – the Latin American market in Europe. Latibex was launched on December 1, 1999 to let investors trade Latin American equities in euros via the Madrid Stock Exchange. During its first year of operation, it has attracted ten issuers, including some of the region’s most prestigious names, and amassed a market cap of over s80 bn.
Latibex argues that it eliminates the currency risk that European investors face when they purchase Latin American shares either on local exchanges or in the form of ADRs in the US. It also removes the time difference between the stock markets of Europe and the Americas and lengthens the trading day for Latin American shares.
But, as the thin trading volumes thus far show, not all European investors are quick to join forces with their Spanish allies. David Manuel, head of Latin American equities at Invesco Asset Management in London, sees no need for Latibex. ‘The local markets and the NYSE are the ones we’ve traditionally used. Most of the market is made in the US flow and the liquidity of the stocks is during the local market in New York hours. If Latibex succeeded in attracting liquidity, we’d probably consider it. But at the end of the day, we deal where we can get liquidity.’
Nevertheless, Latibex has been able to get issuers on board from the largest countries and across various sectors – banking, industrials, telecom and pulp and paper. So far, the majority of issuers are Brazilian: Electrobras, CVRD, Globo Cabo, Aracruz Celulose and Cia Suzano de Papel e Celulose. The largest issuer is Telmex, the most liquid stock in the region and not surprisingly the leader on Latibex with over 12,000 shares traded daily. The rest are units of Spain’s largest banks: Banco Santander Puerto Rico and Banco Rio de la Plata in Argentina, which are under the umbrella of Banco Santander Central Hispano, as well as Banco Frances in Argentina and BBV Bancomer in Mexico, both linked to Banco Bilbao Vizcaya.
Jesus Gonzalez Nieto, Latibex’s director of development, is very satisfied with the results achieved so far, which have exceeded his expectations. ‘In a short time, Latibex has become the third-largest market for Latin America in terms of capitalization. This demonstrates that the companies have perfectly captured the idea and the use of Latibex as a platform in Europe, specifically to trade Latin American shares, and they think it’s a good place to be.’
Investor relations catalyst
One thing is for sure, Latibex has been the catalyst for improving these companies’ investor relations efforts in Europe. Augusto Rocha is head of capital markets and investor relations for Globo Cabo, the largest provider of broadband digital services and pay TV in South America. The company listed in July 2000 and Rocha says it has conducted roadshows in Europe twice since the Latibex listing. ‘The investors we met were very interested in Globo Cabo,’ he reports. ‘They were shareholders before Latibex was in place, but this has brought us closer to them. They’re pretty happy with this new market. They understand it’s still growing, but they are betting on it.’
Nieto also believes the key to Latibex’s success will be the improved relations between European investors and Latin American issuers. ‘Although a lot of them have been used to coming to London and the major financial centers, this gives them more reason to improve the quality of their contacts with investors in Europe. The common denominator for all of these companies is that they want to increase their visibility in Europe and they know that the best way to do this is through investor relations.’
Manuel concurs: ‘It’s great that they get these companies over to Europe.’ Like his peers, he has received visits from the issuing companies and has been invited to attend several conferences hosted by Latibex in Madrid.
As for listing requirements, Latibex has kept these to a minimum to make the market more attractive to issuers. Its listed companies are not required to adjust their accounting; they may simply file results prepared in their domestic Gaap. Those that list in the US with ADRs already have to supplement their domestic figures with US Gaap; Latibex offers a less expensive alternative to traditional ADR programs with their costly legal, accounting and depositary services, by enabling investors to buy and sell the original shares. Electrobras, for example, does not have a listed ADR but it trades an average 1,200 shares a day on Latibex.
Nieto admits that this will lead to a greater degree of analysis on the part of the European analysts who will need to inform their clients of the reporting differences. ‘It’s the same as if a European investor decided to invest in one of these companies in the local market – obviously they face the same country risk, but we eliminate the operational risk through the same currency, legislation, scheduling and process so that they can buy Telmex just as easily as they would Telefonica.’
So far, Spanish investors, including many of the country’s 8 mn retail investors, have provided almost the entire order flow. This 20 percent of the population is actively buying through Latibex because of the lack of minimum order size. According to Nieto, ‘They read the financial news and are very educated on what’s happening in Latin America. In 1999, Spain was the largest direct investor in the region due to the interest from Telefonica, Repsol and various banks. But this translates directly to the Spanish population.’
Today, the Latibex web site gets 30,000 hits per day, compared to the half-million hits on the Madrid Stock Exchange web site, but Nieto is confident of its growth. ‘Investors are surprised at the great ease of trading on Latibex. They are used to the more complex operations they face when buying shares in Mexico or Brazil, or even more complex markets like Peru.’
Catch-22
Nevertheless, success is a catch-22 for Latibex and Latin American issuers alike: they must raise interest to increase liquidity and increase liquidity to raise interest. Latibex must attract more issuers and convince investors to use it rather than going to the local or US markets. Rocha sees promise: ‘We understand that the liquidity is low, but we are betting on the long term. This was our first step in reaching European investors in their own currency.’
Nieto hopes issuers will not only list but will have secondary offerings in this market where they can have a broader distribution channel. ‘Perhaps in the last few months this hasn’t been the most favorable market for Latin issuers,’ he admits, but there are some new initiatives that should help issuers boost their liquidity. For instance, Latibex is adding market makers to tighten spreads, improve pricing and reduce volatility.
Latibex’s goal is to have around 40-50 companies listed within the next two years. Two prominent companies recently signed agreements to join: Enersis, the Chilean energy giant controlled by Spain’s Endesa; and Volcan Minera, a mining company in Peru. This proves that Latibex has been able to reach an agreement with Chilean regulators regarding the control of foreign exchange systems and taxes.
In addition, more effort will go into increasing the visibility of Latibex and its listed companies among European investors. While the UK, France and Germany have given some order flow, Latibex is targeting these and other European markets more aggressively and hopes to become the primary market maker for Latin American stocks.
Overall, Latibex is an excellent concept to help diversify Latin American companies’ shareholder base. While there are talks among several countries of consolidating stock markets throughout the world, including the formation of one centralized European exchange, Latibex now provides a transition into this market. Globo Cabo’s Rocha is optimistic: ‘When consolidation does come to Europe, we will already be there and we will be ready.’
Today, hundreds of years after European explorers crossed the Atlantic, Spain is making inroads into Latin America once again; this time, through Latibex, it hopes to convince its neighbors to get on board.
Melanie Carpenter is a founding partner of I-advize Corporate Communications, an investor relations service provider for Latin American companies (www.i-advize.com).
