Latin Finance - October 2008 - 20

mexican infrastructure investment IDEAL Waits to Pounce by Greg Brosnan atch out LatAm infrastructure, the Slim bulldozer is headed your way. That was the feeling in the market as IDEAL planned its 2005 listing on Mexico’s stock exchange. Since then Carlos Slim has vowed his company will bid on everything from airports to toll roads. But so far, IDEAL has done little bulldozing. Domestic infrastructure leader ICA and large foreign firms have consistently beaten it on major bids for lucrative Mexican projects like highway concessions. However, former Telmex general director Jaime Chico Pardo – now Slim’s go-to guy for infrastructure – says there is no cause yet for alarm. With almost $250 billion in infrastructure projects planned by president Calderón, Chico Pardo says there is no danger of concession opportunities evaporating, and plenty of reason to take things one step at a time. He adds that investors can also expect long-term value for money from the same people who brought them shareholder gold mines Telmex and América Móvil, and Chico Pardo predicts better times ahead for IDEAL. “There will be plenty of work for everyone,” he tells LatinFinance in an exclusive interview. “If you lose one highway, you bid on another. You can’t win them all . . . We’ve always had a long term vision. We’ve never promised anything we can’t eventually fulfill.” W Carlos Slim’s much touted foray into infrastructure has failed to dazzle, despite high hopes that the name would help lure government contracts. But the race is only just beginning. pesos by the end of August. “In all their history they haven’t done anything,” says analyst Cecilia del Castillo, who covers IDEAL for Citi, speaking in late August. She considers the stock expensive even after the midyear drop and recommends selling. “You’re buying into the expectation that Mr Slim was going to win all these [bidding] competitions and all this infrastructure investment,” she says. “You’re paying dearly for a name.” To say IDEAL has done nothing is not entirely fair. Adding to five highways it operates or is building, the company has also won contracts to build and operate two hydro plants in Panama. IDEAL operates a water plant it built in the northern Mexican city of Saltillo and is involved in joint developments with a private university and hospital group, among other ventures. But those projects clearly do not have the asset weight or glamour of booties like the much coveted Farac highway concessions. A joint bid by IDEAL and Australian infrastructure company Macquarie came a painfully close second to ICA/Goldman’s $4.1 billion pitch. Del Castillo puts IDEAL’s failure to snap up such big fish partly down to a lack of experience at a business empire that rules the roost in telecommunications but is still a relative infrastructure novice. “Competing in infrastructure projects is not the same as running Telmex or América Móvil,” she adds. Can’t win them all: Chico Pardo Three years on, after losing government bids such as the prestigious first Farac highway concession to a consortium including ICA and Goldman Sachs, many investors are wondering just what happened. IDEAL’s stock jumped up to 17 pesos as recently as June, but quarterly results have failed to impress. While total revenues grew 35% yearon-year in the second quarter of 2008 in nominal terms, Ebitda rose just 2%, according to Citi. Mexico’s bolsa has taken a hit in recent months and investor doubts over IDEAL’s ability to snare big contracts are almost certainly weighing on the stock, which had fallen below 14 Lying Idle When Slim spun off IDEAL in a September 2005 IPO, stock investors raced to bet on it, pushing it from an initial sale price of 5.2 pesos to almost 15.0 pesos by the following January. The company has a market capitalization of $4.4 billion. 20 LATINFINANCE October 2008

Latin Finance - October 2008

Table of Contents for the Digital Edition of Latin Finance - October 2008