Latin Finance - September/October 2009 - 24

otpp investment strategy referring to Batista and his companies. OTPP first invested alongside Batista when it bought into MMX, a mining company whose main assets were sold to Anglo American last year. It also owns 12% of LLX, Batista’s mining logistics company, and is considering investing in his new shipyard company, BEX. Sturdy Assets Colombia Promise Investing pre-IPO in an oil startup whose goal it is to take on Petrobras is not for the faint hearted investor, nor is it for a dilettante seeking high returns through a quick flip. A combination of due diligence and a long term view are critical, says Kozun. The past 12 months have been volatile for most assets, but OGX in particular has seen substantial swings, with the stock plunging 78% within four months of its IPO, only to trade back up to its debut levels in the ensuing three quarters. “You know going in that it’s a brand new company and there are potential hiccups,” says Kozun. “If it is going to have high risk, then it has to have a high return, and so far our investments with Eike [Batista] have had afforded us a very high return.” As far as LatAm is concerned, Kozun admits OTPP has so far developed a Brazil-heavy equities portfolio that also includes names like Vale, Petrobras and Brazil’s largest banks. But he says a select group of other countries are enticing the Canadian manager to look elsewhere in the region, beyond existing exposure to Bazil, Chile and Mexico. “We’re starting to look at Colombia as well. I think Colombia will be promising,” says Kozun, referencing the country’s political stability, declining concern over drug violence, and what appears to be a heartfelt pledge to treat foreign investors well. A high level of comfort with the legal and judicial framework is also critical, says the investor, noting that even for public and PE investments, OTPP is looking at time horizons up to 30-years. And the fund is chiefly focused on deals that can give the pension plan scale, which means investment tickets above $100 million, says Kozun. OTPP’s first experience with LatAm was in 2005, when it began studying the possibility of investing in Chile’s Transelec through its infrastructure group. Its consortium lost the bid, but gained an appreciation for Chile – including a network of relationships with local financiers and regulators – says Stephen Dowd, head of OTPP’s C$10 billion infrastructure portfolio, which includes more than $1 billion in Chilean assets. Most of the remaining investments are in developed markets. “That gave us the appetite to look at [more] investments in Chile,” says Dowd, and the . . . judiciary systems,” notes Dowd. “Beyond that, you want to know that there’s a transparent business culture and that decisions aren’t being made behind closed doors, or illegally,” he says. Unlike the fund’s equity strategy, which focuses on minority stakes, control over the asset is critical for infrastructure investment. “This is not a portfolio where we’re flipping assets. We’re looking at the long term cash flow profile,” says Dowd. “Our bias is very much against selling,” he adds, which is why so far his shop has made few investments in the region. Finding the right combination of requirements and regulatory stability has been a challenge. In a July interview, Dowd appears to be in no great hurry to add to his LatAm holdings, though he says he continues to scan the horizon for opportunity. Lamosa Slip Hungry for Chile: Dowd whose team went onto acquire stakes in two water companies in 2007. Those include 65% of Essbio and 70% of Esval, both done alongside Chilean state-owned holding company Corfo. In July 2008, OTPP snagged 50% of SAESA, a joint investment alongside Morgan Stanley Infrastructure, for $1.29 billion. OTPP says the purchase of part of the main provider of electricity in the southern regions of Chile gives it diverse assets and stable cash flows that keep pace with inflation, in a country that is open to foreign investment, with a fair and transparent regulatory system. OTPP’s infrastructure group tends to be even more selective than its equity colleagues in picking targets. Again, it is important to adhere to a strict set of requirements, says the investor. “We have to have trust in the consistency of policy One investment that may yet turn out well for OTPP is a $225 million seven-year second lien bullet loan the fund’s fixed income group extended to Mexican tile and ceramics specialist Lamosa. The facility was part of a $900 million M&A package that included dollar and peso-denominated loans from commercial banks. It launched at Libor plus 450 basis points and was supposed to be taken out with proceeds from an equity offering which never materialized. Lamosa, which has substantial exposure to the Mexican homebuilding and real estate markets, suffered a substantial blow to revenues heading into last year’s downturn, owing to strong peso depreciation and an LNG hedge that moved against it. In the first quarter of 2009, Lamosa’s Ebitda fell 38% versus the year-ago period. Leverage ratios jumped to around 6.2x in February from 4.8x a year prior, say bankers familiar with the credit. This forced the company to renegotiate covenants, a process that was still happening in August. An OTPP spokeswoman says the fund does not comment on its fixed income portfolio. Other investments in Mexico include four power plants owned by Boston-based InterGen, in which OTPP has a 50% stake. The 50% OTPP does not own was sold in October 2008 for $950 million to India’s GMR, which provides an updated indication of the value of OTPP’s asset. 24 LatinFinance September/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009

Latin Finance - September/October 2009
Contents
Investment Banking Survey
Who Said That?
OTPP Investment Strategy
Central Bank Scorecards
Brazil Liability Management
Real Estate Equity Resurrected
Structured Finance Forecasts
Grim Outlook. Reform Required
Banorte Seeks to Grow
Peru Spending Hits a Block
BCP Sees Better Days
Caribbean Investment Report
Sustainable Banking
Legal Services Survey
Parting Shot
Latin Finance - September/October 2009 - Latin Finance - September/October 2009
Latin Finance - September/October 2009 - Cover2
Latin Finance - September/October 2009 - Contents
Latin Finance - September/October 2009 - 2
Latin Finance - September/October 2009 - 3
Latin Finance - September/October 2009 - 4
Latin Finance - September/October 2009 - 5
Latin Finance - September/October 2009 - 6
Latin Finance - September/October 2009 - 7
Latin Finance - September/October 2009 - 8
Latin Finance - September/October 2009 - 9
Latin Finance - September/October 2009 - 10
Latin Finance - September/October 2009 - 11
Latin Finance - September/October 2009 - 12
Latin Finance - September/October 2009 - 13
Latin Finance - September/October 2009 - Investment Banking Survey
Latin Finance - September/October 2009 - Who Said That?
Latin Finance - September/October 2009 - 16
Latin Finance - September/October 2009 - 17
Latin Finance - September/October 2009 - 18
Latin Finance - September/October 2009 - 19
Latin Finance - September/October 2009 - 20
Latin Finance - September/October 2009 - 21
Latin Finance - September/October 2009 - 22
Latin Finance - September/October 2009 - OTPP Investment Strategy
Latin Finance - September/October 2009 - 24
Latin Finance - September/October 2009 - 25
Latin Finance - September/October 2009 - Central Bank Scorecards
Latin Finance - September/October 2009 - 27
Latin Finance - September/October 2009 - 28
Latin Finance - September/October 2009 - Brazil Liability Management
Latin Finance - September/October 2009 - Real Estate Equity Resurrected
Latin Finance - September/October 2009 - 31
Latin Finance - September/October 2009 - 32
Latin Finance - September/October 2009 - 33
Latin Finance - September/October 2009 - 34
Latin Finance - September/October 2009 - 35
Latin Finance - September/October 2009 - 36
Latin Finance - September/October 2009 - Structured Finance Forecasts
Latin Finance - September/October 2009 - 38
Latin Finance - September/October 2009 - Grim Outlook. Reform Required
Latin Finance - September/October 2009 - 40
Latin Finance - September/October 2009 - 41
Latin Finance - September/October 2009 - 42
Latin Finance - September/October 2009 - 43
Latin Finance - September/October 2009 - 44
Latin Finance - September/October 2009 - Banorte Seeks to Grow
Latin Finance - September/October 2009 - Peru Spending Hits a Block
Latin Finance - September/October 2009 - 47
Latin Finance - September/October 2009 - 48
Latin Finance - September/October 2009 - 49
Latin Finance - September/October 2009 - BCP Sees Better Days
Latin Finance - September/October 2009 - 51
Latin Finance - September/October 2009 - 52
Latin Finance - September/October 2009 - 53
Latin Finance - September/October 2009 - 54
Latin Finance - September/October 2009 - Caribbean Investment Report
Latin Finance - September/October 2009 - 56
Latin Finance - September/October 2009 - 57
Latin Finance - September/October 2009 - 58
Latin Finance - September/October 2009 - 59
Latin Finance - September/October 2009 - 60
Latin Finance - September/October 2009 - 61
Latin Finance - September/October 2009 - 62
Latin Finance - September/October 2009 - 63
Latin Finance - September/October 2009 - 64
Latin Finance - September/October 2009 - 65
Latin Finance - September/October 2009 - 66
Latin Finance - September/October 2009 - Sustainable Banking
Latin Finance - September/October 2009 - 68
Latin Finance - September/October 2009 - Legal Services Survey
Latin Finance - September/October 2009 - 70
Latin Finance - September/October 2009 - 71
Latin Finance - September/October 2009 - 72
Latin Finance - September/October 2009 - 73
Latin Finance - September/October 2009 - 74
Latin Finance - September/October 2009 - 75
Latin Finance - September/October 2009 - 76
Latin Finance - September/October 2009 - 77
Latin Finance - September/October 2009 - 78
Latin Finance - September/October 2009 - Parting Shot
Latin Finance - September/October 2009 - 80
Latin Finance - September/October 2009 - Cover3
Latin Finance - September/October 2009 - Cover4
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