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IFC Investing Intensely, Backing Bancolombia Big-time

March 9, 2010

There have been seven transactions – more than one a month – in the less than six months since I last wrote about the IFC investing in Colombia,  including the largest IFC deal ever in Colombia, $400 million dollars.  That brings the amount IFC has invested in its 43 deals since 2004 to well north of $2.5 billion, by my count.

The financial sector remains IFC’s largest focus, with big bets on Bancolombia and microlenders associated with the Women’s World Bank.  Infrastructure funding is also a big winner, with an innovative private equity fund and a port deal in the mix. IFC even funded a 100% family owned dairy company. I will look at each of these in future posts.

For now, all the attention goes to the IFC’s chart-topping deal that provides funds to back a risk management facility of Bancolombia, located in Medellín, in providing hedging instruments to Colombian companies. The $400 million (“notional”) amount of the commitment is about all that is disclosed by the IFC. More detail is not provided. IFC says that Bancolombia “has 714 branches and 2,223 automatic teller machines (ATMs) across Colombia, for a countrywide footprint. As of November 2009, it accounted for approximately 20% of total net loans and 19% of total net deposits within the entire local banking system.”  Previously, the biggest IFC deal was a 2007 transaction providing $275 million in funding the acquisition and management of a portfolio of non-performing loans (NPL’s) taken over by the government during the Colombian banking crisis of 1999.

IFC maintains its appetite for NPLs, Bancolombia also landed $50M from IFC to support its Investment Bank unit in funding recurring purchases of non-performing loans originated by the bank.

The following table shows the 2009-2010 IFC deals, by size in each year. (A complete, updated list of all IFC deals 2004-2010 by size and by borrower will be appended to future posts in this series.)  The IFC Projects Search page will help you find the source for all the information quoted below.

Rank Year Proj. No. Company Name Sector IFC Amt. ($USM) Notes
11 2010 28892 Bancolombia Finance and Insurance 50 Financing the acquisition of non-performing loans originated by Bancolombia and its subsidiaries.The proposed project consists on the structuring of a recurrent purchase program of Non-Performing Loans (NPLs) originated by Bancolombia and its subsidiaries.Banca de Inversión Bancolombia, a finance corporation and wholly owned subsidiary of Bancolombia S.A., provides investment banking services to its corporate clientele. Bancolombia, the largest bank in Colombia, accounted for approximately 20% of total net loans and 19% of total net deposits within the entire local banking system as of December 2009. Bancolombia is listed in the NYSE since 1995 through an ADR program. Its largest shareholders are Grupo de Inversiones Suramericana  29.2%, the ADR program 22.6%, Colombian Pension Funds 18.4% and Inversiones Argos 7.9%.

Covinoc (the “NPL Servicer”) is a local specialized servicer, which for more than 50 years has provided recovery and portfolio management services to financial intermediaries in Colombia. The company is the largest NPL servicer in the country in terms of assets under management (approximately US$ 1.3 billion as of June 2009), distributed over more than 270,000 loans.

Covinoc’s shareholding structure includes: Lantro S.A. (19.4%), Ircanda S.A. (19.4%), Inversiones la Costa Ltda (19.0%), Arigu y Cia SCA (17.4%), IFC (12.98%), Delta Associates Inc (10.1%), Nicolas Gomez y Cia Ltda (0.9%), Nicolas Gomez Nieto (0.9%).

1 2010 28671 Bancolombia Finance and Insurance 400 The proposed transaction consists of a risk management facility for up to US$ 400 million in notional amount earmarked at strengthening Bancolombia’s ability to provide hedging instruments to its clientele through a risk management facility.Bancolombia is the largest bank in Colombia. Bancolombia is headquartered in Medellín, Colombia. The Bank has 714 branches and 2,223 automatic teller machines (ATMs) across Colombia, for a countrywide footprint. As of November 2009, it accounted for approximately 20% of total net loans and 19% of total net deposits within the entire local banking system. The bank, together with its subsidiaries, offers a wide array of products and services channeled through a regional platform that includes a leading bank in El Salvador. Grupo Bancolombia’s products and services include: investment banking; stock brokerage; leasing; factoring; consumer finance; asset management; fiduciary and trust services; and pension fund management.

Bancolombia is listed in the NYSE since 1995 through an ADR program. Its largest shareholders are. Grupo de Inversiones Suramericana  29.2%, the ADR program 22.6%, Colombian Pension Funds 18.4% and Inversiones Argos 7.9%.

17 2010 28492 Alqueria Food & Beverage 36 Productos Naturales de la Sabana S.A. Alqueria (“Alqueria” or the “Company”) is the third-largest dairy company in Colombia. The Company processes milk and its sub-products into a wide range of dairy products such as UHT milk, flavored liquid milk, cream and yoghurt – through a JV with Danone — as well as fruit beverages from concentrate.
The proposed IFC investment (the “Investment”) is an amortizing A-Loan of up to $15 million and preferred shares of up to $5.0 million in favor of Alqueria. The Investment will help the Company implement its 2010 – 2012 investment program, involving: (i) expanding production capacity across plants; (ii) incurring capex aimed at gaining efficiencies and cost reduction; and (iii) increasing/generating incremental working capital.Founded in 1959 by Mr. Jorge Cavelier, Alqueria is currently 100% owned by the Cavelier family (the “Sponsor”).

With a production capacity of 317mn liters/year, Alqueria operates 3 production plants in the 3 main cities of Colombia: Cajica (near Bogota), Cali and Medellin. In addition to these, it also owns a distribution center in Bucaramanga. The proposed investment will involve all 4 plants.

18 2010 28240 Bancamia Finance and Insurance 30 The proposed project is part of IFC’s support to Bancamia’s transformation process from an NGO to a bank, in order to increase access to finance to micro enterprises, low and middle income segments, rural populations, and women. The project has been designed as a blend of advisory services, equity and debt, where IFC is acting as an advisor and partner geared at facilitating the growth of the Bank. The investment is aimed at supporting the Bank’s growth strategy. The funds will finance micro entrepreneurs and low income segments in frontier regions and small and medium sized municipalities, where commercial banks are not present.Fundacion Microfinanzas BBVA (51% share) was created by the Spanish banking conglomerate Banco Bilbao Viscaya Argentaria (“BBVA”) in 2007 with an initial capitalization of €200 million, as an initiative geared at enhancing microfinance through debt and equity investments in MFIs and banks catering to the sector.

Corporación Mundial de la Mujer de Medellín (24.5% share) and Corporación Mundial de la Mujer Colombia (24.5% share) were created in 1985 and 1989, respectively, as NGOs affiliated to the Women’s World Bank. Given their status as nonprofit foundations, there are no sponsors in terms of equity ownership. The ultimate responsibility of the institutions falls under their respective Board of Directors, composed by reputable Colombian citizens.

Bancamia, a micro finance institution, was created in 2008 as a joint venture between Corporación Mundial de la Mujer de Medellín, Corporación Mundial de la Mujer Colombia and Fundacion Microfinanzas BBVA.

25 2010 29171 Colombia Infrastrucutre Fund Ashmore I FCP Collective Investment Vehicles 20 To invest up to $20 million equivalent, not exceeding 20% of total commitments, in the Ashmore Colombia Infrastructure Fund (the “Fund”), a private equity fund that will make infrastructure investments in Colombia. The Fund is managed by Ashmore Management Company Colombia (the “Manager”). The Government of Colombia was instrumental in developing this investment vehicle together with IDB and CAF, as a means of attracting domestic institutional investors such as local pension funds as well as international investors to financing infrastructure projects. The Fund has a target size of $500 million.The Manager is owned by Ashmore Group plc, Inverlink SA, and Messrs. Pedro Nel Ospina and Mr. Francisco Lozano. Ashmore is a UK-based global private equity group with US$31 billion in assets under management, listed on the London Stock Exchange (ticker: ASHM). Ashmore is known for distressed investing in emerging markets but is also active in infrastructure investing in Latin America through Ashmore Energy International. Inverlink is one of Colombia’s leading investment banks. Messrs. Ospina and Lozano held several senior positions in the Colombian government as well as the private sector, including (for Mr. Ospina) being CEO of Corporación Financiera Colombiana before launching the Fund. The Fund plans to invest in 10 to 15 infrastructure projects in Colombia, in sectors such as transportation, power, oil and gas, water, telecommunications, waste management, and logistics.

The Bogota-based fund management team is led by Camilo Villaveces, previously at Inverlink, and Messrs. Ospina and Lozano, along with staff from Ashmore and Inverlink who will be seconded to the team. The Fund’s investment and divestment decisions will be made by an Investment Committee, which consists of senior executives from Ashmore and Inverlink. In addition, Macquarie Group, a global investment bank and a leader in infrastructure investing, has been hired as technical advisor.

37 2009 28547 Fundacion Mundo Mujer Popayan Finance and Insurance 6 To continue growing and diversifying FMM Popayan funding sources in order to increase financing options for low income individuals who are currently underserved, specially micro entrepreneurs and women located in rural areas.Located in the Southeastern Province of Cauca, FMM Popayan is the second largest provider of microfinance in the country in terms of assets (excluding supervised banks), was founded in 1989 and operates as a nonprofit organization. As such, it does not offer any deposit services and is not regulated nor supervised by the country’s banking authority. Given FMM Popayán’s status as a nonprofit foundation, there are no sponsors in terms of ownership. As an affiliate of the Women’s World Banking Network (WWB), the Company has been benefited from technical assistance services, information and know-how geared to strengthen their scale, efficiency, sustainability and impact. However, historically there has been no ownership relationship between the WWB and FMM Popayán.
31 2009 28544 Santa Marta International Terminal Company Transportation and Warehousing 15.8 $50M Refurbishment and operation by Santa Marta International Terminal Company, S.A. (“SMITCO”) of a container terminal inside the Port of Santa Marta, which is located on the Caribbean coast and is Colombia’s third largest port. The Project includes (i) the refurbishment of 2 berths with a combined total length of 322 meters; (ii) the installation of two Post-Panamax Ship-to-Shore cranes, four Rubber Tired Gantries Cranes, and other terminal handing equipment to complement an existing mobile harbor crane; and (iii) the demolition of existing buildings and expansion of the container yard from 4 hectares to 8 hectares. Upon completion, the terminal’s container handling capacity will increase from 120,000 twenty foot equivalent container units (“TEUs”) to 300,000 TEUs.SMITCO is approximately 51% owned by Sociedad Portuaria de Santa Marta (“SPRSM”) and approximately 49% owned by an indirect subsidiary of Carrix Inc. Carrix is a privately held U.S. company and is one of the largest container terminal operators and cargo handling companies in the world. SPRSM operates the Port of Santa Marta under a concession ending in 2033 and is owned by private investors, the State of Magdalena, the Municipality of Santa Marta and the Ministry of Transportation
36 2009 27689 Uniminuto Education Services $8 The total project cost over the 2009-2010 period is estimated at $18 million. The proposed IFC investment is a $8 million A loan for IFC’s own account.The physical infrastructure component of the investment program consists of three projects in Cundinamarca, including expansion of two key facilities in Bogota and Soacha, as well as construction of a new (phase 1) facility in Girardot. Land has been secured in all cases, and project planning is at advanced stages.

Development impact: Increased Access to Tertiary Education Services – Colombia has made significant advances in gross enrollment ratios at all education levels over the past 5 years yet access and coverage for certain segments of the population remain weak. While average gross enrollment ratios for tertiary education are estimated at 29%, government data indicates that coverage in Bogota may exceed 50%, yet remain below 10% in various departments. Additionally, schooling has traditionally been less accessible to students of lower socioeconomic backgrounds. Through its network approach, commitment to distance learning technologies and presence in more than 11 departments, Uniminuto is expected to contribute to increased coverage for students in more remote areas of the country.

38 2009 27745 Covinoc SA Finance and Insurance $5 The proposed investment consists of an equity investment in common shares for up to US$5 million earmarked at strengthening Covinoc’s ability to administer pools of non-performing assets. This investment is expected to assist the Company in the implementation of the growth plan put forth by its management and shareholders.
19 2009 27549 Riopaila Agriculture and Forestry $30 Riopaila Castilla is implementing a cost reduction and technological improvement program from 2008–2012 while diversifying its agribusiness activities. Specifically, Riopaila Castilla’s Investment Program entails:adding co-generation capacity with the objective of selling excess energy to the national grid;

replacing and modernizing equipment and machinery across production units; and

restructuring short- and medium-term debt that is maturing in 2008–2010.

With this Investment Program, Riopaila Castilla expects to:

– further integrate the sugar-cane value chain;

– improve efficiencies and cut costs by reducing the consumption of steam and energy per ton of cane milled;

– carry out needed maintenance investments and equipment upgrades to firm up its competitive position in Colombia; and

– strengthen its balance sheet by extending maturity of short- and medium-term debt.

3 2009 28479 Sociedad Portuaria Terminal de Contenedores de Buenaventura (“TCBuen”) Transportation and Warehousing $224 Colombia’s Pacific Port development, engineering, construction, dredging, equipment purchases, and operation of the terminal.IFC investment comprises an A Loan of $25 million, for IFC’s own account, a B Loan of $117 million from syndication banks, and a C Loan of up to $15 million.
26 2009 27961 Greystar Oil, Gas, Mining $20 The total project cost of the exploration and pre-mine development phase of the project is estimated at C$131 million, and the company is seeking to raise up to US$20 million from IFC. It is proposed that IFC will initially contribute approximately C$12.04 million in equity with a right to invest approximately up to an additional C$12.19 million on the exercise of warrants to be issued as part of the equity subscription (these estimated proceeds are based on current exchange rates). IFC’s investment would be used to fund completion of the BFS, ESIA, and other needed ground works to prepare for the project development stage. For the period from 2001 to the present, the company raised C$122 million in equity financing, including the exercise of warrants related to the financings.The Angostura project is located 55 km by road from Bucaramanga, the capital of the Santander Region. The deposit elevation ranges from 2,600 to 3,400 meters above sea level. The project is in a traditional mining area; it enjoys access to the existing power grid, water and materials, and a skilled local work force. There are three villages which are located within 15 km of the project site.

Development Impact: Colombia has substantial mineral resources, but the country still suffers from country risk perceptions among many potential foreign investors. A successful project of this size would likely spur significant additional global mining interest in Colombia, particularly valuable at a time when Colombia has demonstrated considerable progress in addressing security issues and political risk and is well positioned for continued economic success.

IFC has identified Colombia as a primary target for mining investment because of the potential for substantial development impact from the mining sector. This would be IFC’s first mining investment in Colombia.

A mine development of the expected size could have substantial impact on the local communities, not only through direct employment and services, but also from government royalties and taxes that flow back directly to local municipalities. It is estimated that 97% of the royalties will flow back directly to the region, with 87% of total royalties flowing to the municipality level. The Government of Colombia and oil and gas companies have been working with IFC on a pilot municipal level royalty management and capacity building program in the petroleum sector. The Government of Colombia, the Ministry of Mines, and mining associations have expressed interest in expanding this program to the mining sector. The two municipalities where the project is located could be part of any second pilot program, further ensuring greater development benefits to the local communities.

30 2009 27780 Termo Rubiales Utilities $16.5 The total project cost is estimated at about $68.5 million. The proposed IFC investment is a $16.5 million loan. The project is located in the Llanos Basin, 465 km from Bogotá in the Meta Department.Development Impact: IFC is investing in Termo Rubiales to support the development of Meta Petroleum, a promising player of the oil industry in Colombia that has embarked in an ambitious plan to increase the production of the Rubiales field. The investment in Termo Rubiales would be directly supportive of Government policies to increase local production and private investment in the oil sector.
39 2009 27952 Cartones Pulp and Paper $.756 Cartones America is planning to reduce their use of energy at their plant in Cali, Colombia. The energy efficiency improvement project planned by Cartones consist several sub-projects which will help it to reduce its energy consumption and thus reduce the operating cost for energy by almost 17% annually. This project is an overall energy systems improvement which will consist of improving the electrical system, such as lowering the voltage setting on the transformers, improving the transmission efficiency of motor by using poly V-belts instead of ordinary V-belts, increase the efficiency of the electric motor by replacing large standard efficiency motors with high efficiency motors and also down-sizing motors so that they operate at optimal loading, the plant will also install variable speed drives on some application so that the supplied power to the machines matches the demand and also improve its lighting and refrigeration systems. On the thermal side the plant will be improving the efficiency of its boilers by installing automatic air-fuel regulators, improving its insulation on its steam pipes, valves and flanges and most importantly it will be improving the steam/ condensate management system at its Paper machine 3 so that its specific steam consumption will be reduced. Together, these “Cleaner Production” investment for energy efficiency qualify for funding via IFC’s Board approved Cleaner Production Lending Pilot, a $20 million Facility via which IFC can provide Cleaner Production sub-loans to its existing portfolio clients.The estimated total project cost is $755,814 and the proposed IFC investment is an A Loan (Cleaner Production Loan) of $756,000 equivalent for IFC’s account. This investment in Cartones America will be a sub-loan for the above mentioned dedicated lending facility established as part of IFC’s Cleaner Production Lending Pilot initiative.

The Cleaner Production Investment will be implemented at Cartones America’s Cali plant, which is located about 190 miles South-West of Bogota.

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One Comment leave one →
  1. March 12, 2010 9:45 pm

    Responding to a comment left on LinkedIn to the effect that banking is oligarhical and uses market ineffeciencies to boost billionaires’ wealth, I wrote the following:
    IFC’s actions arguably reduce inefficiencies and increase market participation.

    The need for backing the Colombian financial sector comes from the “lost decade” of the almost-failed-state in Colombia in the 90’s, followed by the 99 banking crisis.

    My research confirms that IFC is backing a number of diverse financial institutions and focusing on micro finance and SMEs as well. Credit costs have plummeted in Colombia, which largely avoided the worldwide recession and credit crisis of 08-09. Meanwhile, credit availability is up considerably.

    Finandina is a great example. With IFC backing, they provide fleet finance, equipment and vehicle leasing, at attractive rates with full service, and therefore compete effectively with the banks. Without low-cost IFC capital, this could not have happened.

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