HBI (Helm Banca de Inversion) the independent investment bank belonging to Helm Group, has started 2015 as Colombia’s leading investment bank in the discipline of Project Finance. Currently, the investment bank is working on more than 20 large transactions in sectors such as infrastructure, food, health, real estate, education, and utilities.
ABOVE: Helm’s Executive Director Pablo Bickenbach (l), and President Lorenzo Garavito (r)
Finance Colombia’s executive editor Loren Moss recently sat down with Loreno Garavito, HBI’s President, and Pablo Bickenbach, the bank’s Executive Director, to discuss the state of Colombia’s finance market, CorpBanco’s recent purchase of the majority of Helm Group’s commercial banking operations, and HBI’s future.
Finance Colombia: Banco CorpBanca purchased Helm Bank, the commercial banking arm of Helm Group. Could you explain where Helm Group was at a business, and what precipitated the transaction with CorpBanca, and now where that leaves HBI?
LORENO GARAVITO: Of course, Helm Bank was a very strong corporate bank in Colombia. One of the banks with the best clientele, with very low bad debt, and it was a very conservative bank. It has always been a very trustworthy bank in Colombia. CorpBanca was interested in growing outside of Chile. They had recently purchased Santander’s operations in Colombia and they wanted to continue growing their presence here, so they approached Grupo Helm and the group decided that it was a good time to sell the bank, as the other Helm group businesses were growing at a very fast pace, including the machinery distribution business, and the energy and engineering business. So it was a good time for the group to capitalize all the other businesses, to be able to grow and to be able to give the bank also enough capital to grow the bank itself. It has proven true that CorpBanca is a very good partner for us and for the bank, to help grow the bank and they have done a very good job in the time they have been with Helm. The group still owns 20% of CorpBanca Colombia, which is the sum of Santander and Helm, and the bank is doing very well.
Finance Colombia: So tell me, with the restructuring HBI has had, with Helm Banca de Inversiones now, what does that investment and restructuring allow the investment bank to do? And what kind of deals are you now free to pursue? Also, what clients are you able to serve in ways that you could do perhaps better than before? What new reach does that give you?
LORENO GARAVITO: Well, I think HBI has always been an independent entity from the bank. We were never a subsidiary of the bank, we were always owned by the same shareholders, but an independent company. We focus on three types of business. One is project finance, we are very good at structuring projects, especially in the infrastructure area and we finance those projects. Two, we are very good in syndicated loans, so pulling a group of banks together to finance large companies, and three, M&A (Mergers & Acquisitions).
I think that we are starting 2015 with the best pipeline that we have had in the history of the firm.
I would say syndicated loans, being more independent from Helm Bank has helped us broaden our reach with other banks. We always have worked with all the banks in Colombia but now being even more independent from Helm Bank has helped us grow in that area. We have also in the last couple of years, since the group sold the bank and we became a more independent entity, been allowed to make more alliances with international players to be able to bring more ideas to our clients, as well as innovation. For example, we have alliances with Sumitomo Bank in Japan for project finance and the growth of investment or financing infrastructure projects in Latin America. We have a partnership with Neuberger Berman, the asset manager in New York. We are in a partnership with them in a fund of funds for Latin American private equity and we have alliances with a Peruvian investing bank called Capia. In Brazil, we are working with another global investment bank called Moelis on different transactions, so we are able to broaden our reach in the region and bring more ideas to Colombian companies and we see that from the M&A side, there is a lot more interest in Colombian companies going abroad. A few years ago we had the very large companies, banks buying outside Colombia. Now we see a lot of medium-sized companies also growing outside Colombia, focusing on Peru, focusing on Brazil, on Central America and we are broadening our reach to able to bring ideas to those clients.
Finance Colombia: Colombia has seen strong and consistent in economic growth; it’s now the third largest economy in Latin America and with only 50 million people that says quite a bit because number two is Mexico with 120 million people, so that’s pretty impressive. We have seen a successful ADR offering of group Aval, for example, in the New York Stock Exchange. How is this growth translating into the local investment climate? And when I say that, I mean for your local small institutional investors, for those that are investing in the Colombian stock market or commodities market, the Colombian private equity landscape? How does the macro-economic growth that Colombia has experienced–how is that changing the local institutional investment climate here in Colombia?
LORENO GARAVITO:I think there is a lot of appetite to invest here in Colombia. People are looking for opportunities to increase their exposure to the Colombian market. The stock exchange, I think, has done a very good job in bringing in new listed companies and more opportunities to invest, but the stock exchange is still a relatively small part of the economy. So I think that people are definitely looking at alternative investments, investing directly into companies or through private equity firms. So what we have seen in the last six or seven years is a boom of private equity firms and even international private equity firms opening offices here in Colombia and we are starting to see large deals, billion dollar deals in Colombia. Private equity deals that were unthinkable a few years ago, now they are happening. We see more interest in reaching different sectors of the economy, where it’s difficult to invest for the public companies.
Finance Colombia: How much of that investment appetite is domestic and how much of that is interest from outside the country in the Colombian economy?
LORENO GARAVITO: I don’t have the data, but I would say that still more than half are Colombian investors. Pension funds are very, very active. They have big savings, and compared to the capitalization of the stock exchange, they are pretty large. So still I would say that foreigners trade more and they are…
Finance Colombia: Traders and speculators rather than investors?
LORENO GARAVITO: Well, there are two kinds of them and I don’t want to say that they are short term because I think there are very long-term investors in Colombia, but they move more quickly, I would say, in their investment portfolios. Part of it is because the Colombia pension funds have a mandate to be (invested) here for the long-term. That’s our mandate, versus foreign investors that have global mandates. But I would say that of the total investors, more than half are Colombians, and I would also say that there are days were the trading is more foreign-driven than Colombian-driven.
Finance Colombia: Colombia is one of the only, maybe the only country in the region that has no history of nationalization. So I think that the benefit of that is, just like people want to go to the dollar as a safe haven, people who are invested in Latin America or emerging markets see Colombia as a relative safe haven.
LORENO GARAVITO: I think that people that say “I want to have money in Latin America” consider Colombia safe. There is no Chavez to come and take your refinery away from you! [laughs] I think that with a long history of safe economic environment and respect for foreign investors, Colombia is one of the few countries that over the last 100 years has maybe had 2 or 3 years of negative economic growth. The rest have always been positive GDP growth. It’s very stable and Colombia has done something for the last 60 or 70 years, which is to separate the economics, from the politics, so you may have politicians fighting and fighting, but the central bank and the ministry of finance is always managed by technical people.
Finance Colombia: That’s critical and then the rule of law, you know, I mean it’s not perfect but it’s not perfect anywhere. If you look at Panama’s judiciary system, companies don’t want to go there because their courtroom is arbitrary, you know it’s going to be “I’m friends with the judge, so I won.” [laughs] You know, that’s the situation to the north, but Colombia doesn’t have that.
LORENO GARAVITO:No, it’s not perfect, but it works.
Finance Colombia: How is investors’ confidence affected by the turmoil in other parts of South America, some of the neighboring countries? Are investors smart enough to differentiate Colombia? Or do you find that you need to educate sometimes if you are talking to, say potential foreign investors that are looking at, the Colombian insurance market or even a private equity type of deal? Do the investors usually come in understanding that there are vast differences within South America or is there an educational process still that you have to do?
LORENO GARAVITO:I would say that 15 years ago, when I started doing investment banking, I definitely had to educate people about where Colombia is. Today, I think that large and even medium-size investors know the difference. They have seen it and they have lived the differences throughout different countries in Latin America. I would say that maybe among medium to small sized companies there might be some concern about it, but it’s a logical kind of concern when companies go abroad. But I would say that large and medium-size corporations from the US, European, Asian investors, they know the difference.
Finance Colombia: What changes do you expect to see in Colombia’s investment climate in the coming year?
LORENO GARAVITO:I think that the big macro-economic changes are going to bring changes in the Colombian economy. So oil prices at $60 or below and the peso-dollar exchange rate past 2400 will bring significant changes to the Colombian economy. I think export companies will grow a lot, and I think that we will see investment, and that will bring employment. In the past years, I would say the focus has been on infrastructure and oil, gas, and mining. Those are not employment-intensive industries, but the export industry is very employment intensive.I think that will definitely benefit the country, and I think that we will see a shift towards manufacturing and towards export-oriented industries. Infrastructure investment also is big for 2015 because we have seen the government getting ready for the big infrastructure projects. Those projects are starting to be executed and those are labor intensive and that will bring growth to the country.
Finance Colombia: HBI has been through a big past year so, aside from the Colombian economy in general, what changes or growth do you see for HBI?
LORENO GARAVITO: I think that we are starting 2015 with the best pipeline that we have had in the history of the firm. More than 20 mandates, a variety of mandates, so including Colombian companies buying outside as we mentioned, we are in a position with Brazil, for a couple of deals with Peru. We have financing deals in Peru, in Panama, in Chile so we have seen this growth and internationalization of the Colombian companies as very positive for us and we have been partners with the Colombian companies in their international growth. We have a strong pipeline as well in Colombia, financing infrastructure and real estate projects. We are the advisers of one of the largest real estate projects that is starting in Bogota at 7th Ave & 100th St. (Colombia’s upscale Chicó neighborhood and business district) and so we see 2015 as a very good year. We expect at least to double our revenues for 2015 compared to 2014 and continue to grow our pipeline of clients in Colombia.
Finance Colombia: Let’s talk about that. Tell me about the investment climate for Colombian real estate at the institutional level.
Pablo Bickenbach: In Colombia, since we had at the end of the 1990s an economic crisis, developers and construction companies learned the lesson. And since then, there are now specific structures; the way they finance their projects and real estate in a safe way, and it mitigates and reduces risk for financial institutions and banks.
Finance Colombia: So is it that the Colombian real estate market is not overleveraged so that it doesn’t become over volatile or is it a restructuring?
LORENO GARAVITO: Yes, I think that developers are far more conservative here than in other parts of the world. So leverage is not so big, even leverage for consumers buying their home. I think the market learned its lesson in the end of the 1990s where there were a lot of firms that suffered. But now, in that respect, what Pablo is saying is projects are in need of more structure. Deals are getting bigger and transactions are getting more complex to put together. So we see a lot of investment bank and advisory service to real estate companies, far more than a few years ago.