LatinFinance - July/August 2014 - 22

CORPORATE WITH THE BEST EQUITY
MARKET STRATEGY; ANDEAN
CORPORATE WITH THE BEST CAPITAL
MARKETS STRATEGY

Graña y Montero

An Andean infrastructure
push is spurring business
for construction companies - and raising their
chances in the markets
The region-wide push for more and better
infrastructure in Latin America - and
particularly the Andean region - has been
welcome news for construction companies.
But for Peruvian firm Graña y Montero,
which operates mainly in Peru, Chile and
Colombia, it has also created a problem,
albeit a good one: choosing which projects
to take on.
"The difficult part, always, is being very
disciplined at the moment of adjudication,"
says Mario Alvarado, chief executive of
Graña y Montero, of the bidding process for
infrastructure projects. "The temptation of
getting a project is strong, so discipline and
patience is something that's difficult to hold
onto in this type of business."
The company's position in a critical
industry for the Andean countries spurred
interest for its US listing last year. The
firm raised $474 million in an IPO of
American Depositary Receipts in July.
Strong oversubscription pushed the deal
larger than planned, and the company has
already put some of the cash to work in new
projects.
Graña y Montero had $1.7 billion worth
of new investments in development as of
April, including road projects in Lima, and
it had its sights on $12.3 billion of possible
projects for the future.
The success of the US IPO at a rocky time
for markets globally makes the company
stand out among Latin America's equity
market participants, in a period of limited
new issuance. The deal was said at the
time to be mainly subscribed by US and
European buyers, with LatAm investors
also participating.
The deal suffered in the aftermarket,
although this can be attributed partly to a
generalized slump in Latin American stock
markets over the past year. Graña's ADS

22 LATINFINANCE.COM - July/August 2014

was trading around $17 by the end of March
this year, down from the $21.13 IPO price.
It had slumped further, to $16.32, by early
June.
The listing process had some surprises,
though the requirements were something
that the company was used to dealing with.
"The preparation, even if it wasn't so
complex because we have been listed on
the Lima stock exchange since 1997 - the
level of the requirements, of having proof
of every document and everything we said
- was higher than what we had in the past,"
Alvarado says.
BUILDING LIQUIDITY: Graña y Montero's
chief executive, Mario Alvaredo, talks about
his firm's New York IPO

MARIO ALVARADO, GRAÑA Y MONTERO

"THE LIMA STOCK
EXCHANGE IS GENERALLY FAIRLY ILLIQUID,
AND THAT WAS ONE
OF THE MAIN REASONS
WHY WE LISTED IN
NEW YORK"

"It made our processes a bit stricter and
more formal than they were before. But
there wasn't anything that one would say
was important or traumatic."
Less expected, though, was the response
from investors that the company met on
the roadshow.
"We were ready to find skeptical and
difficult markets," he says. "But we found
something quite interesting: from the
first meeting, we found the view that the
investors had towards Peru was very good.
"We were struck by how well positioned
Peru was, and by how familiar they were
with the country's finances, what had
been done in recent years, the structural
reforms, and how business is conducted.
"The second thing that struck me was
how well they knew the
company - a lot more than I
had imagined. Many people
had followed the company
for some time, and were
interested in it. But because of
liquidity issues they couldn't
participate.
"The Lima stock exchange
is generally fairly illiquid,
and that was one of the main
reasons why we listed in New
York."
The equity raise gives
the company plenty of dry
powder to take on new
projects, even if it need to be
selective about what deals
it bids on. Graña y Montero
might look at raising more
capital from equity markets in
three to four years. For now,
it's happy with its size.
"We don't see [a follow-on]
happening any time soon,"
says Alvarado. "It will take
some time. We have a large
capacity for investment."
The company typically turns to debt
investors to refinance capital expenditure
once projects are operational. That is
the expectation for the first line of Lima's
metro system. The second tranche of the
railway line is due to start running midyear, and Graña y Montero is looking to
sell a Peruvian-sol denominated project
financing bond in the international markets
as a result.
Acquisitions are also a possibility for
growth, depending on opportunities that
are available, says Alvarado. "In general our
strategy for growth is organic - including in
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