When the global financial crisis struck in September 2008, Ecuador’s banks barely flinched. Sure, the global crisis hit the South American country hard, shrinking markets for Ecuadorean exports, hammering the price of the OPEC member’s oil, and spilling tens of thousands of Ecuadorean overseas workers into the streets, undercutting remittances sent home.
Wiser after a wrenching systemic crisis in 1998-2000 that led two dozen banks into bankruptcy and even made the country drop its currency in favour of the dollar, the banking system continued liquid. Ecuador’s isolation from foreign markets limited the contagion: exchanges weren’t exposed to sophisticated derivative products and banks and corporations weren’t exposed to instruments that turned toxic.
Foreign banks meanwhile have largely turned a blind eye to oil-rich Ecuador, with Lloyds ending a near-century of its own presence in August 2010, making it the last major foreign bank to close shop. But this exodus has been less a consequence of Ecuador’s tumultuous recent political history than a retrenching of the Dutch, US and British banks in the wake of successive South American crises from the late 1990s to early this century and the subsequent global crisis.
No-one knows the opportunities of the attractive playing field they’ve left behind better than Quito’s most prestigious investment bank: Analytica. Its in-depth local knowledge of Ecuador’s complexities has been crucial in finding numerous sub-radar opportunities, all the while drawing on its home-grown management’s international expertise and network. And its success has been clear almost from its start in 1996: none of its clients lost money in the Ecuadorean crisis.
Bankers Ramiro Crespo and Eduardo Checa have formed Analytica’s double leadership since 2005. Mr Crespo is Analytica’s general director and main partner; a former Edward S. Mason fellow at Harvard University’s Kennedy School of Government, with business and economics degrees from Georgetown and Maryland Universities. He previously worked at Citibank and National Westminster in New York. He has been on the board of directors of Quito’s stock exchange, Ecuador’s central securities deposit company, and the country’s mining chamber. Mr Crespo has been quoted by numerous local and international media companies including The Economist, the Wall Street Journal, Reuters, Dow Jones Newswires and CNN. He has also published articles in local magazines Vistazo and Vanguardia and has expertise in the aviation industry. Before joining Analytica, Mr Checa, who also has a US business degree from the University of Wisconsin-Stout, was ING Group’s country manager for Ecuador from 2000 to 2003 after being Vice President and Head of Corporate Finance. He was also Second Vice President at Chase Manhattan and has held executive positions at several local banks. Mr Checa also advised the conservative Durán Ballén government and now manages Analytica’s business activities, including mergers and acquisitions, its brokerage, fund management, and research. The combination of local and international experience brings both the proper networks and depth of knowledge for market leadership helping to link the local with the global market. “We’re already looking at the whole of Latin America and creating a regional platform,” says Mr Checa. “We’re working in trading and swaps of debt, private equity and M&A, obviously with international partners.”
The privately-held boutique investment bank with 15 full-time staff members has thus made its mark in advising numerous important local transactions. Emerging from Ecuador’s InvestBan, it weathered the turn-of-the century crisis, in fact becoming one of the leading institutions in Ecuador’s unusual back-to-private sector drive. Unlike Chile, Mexico or Argentina, neo-liberalism never really took hold there. But in 1998-2000, bankrupt financial holdings had to pass their assets to a government deposit-insurance authority, AGD, amid the massive bailout. AGD in its decade of existence slowly re-privatised companies, including under the present administration, on several occasions enlisting support from the bank. Among other fallout from the crisis, Analytica crucially guided foundations which successfully participated in United States Court of Appeals for the Second Circuit interpleading proceedings over sovereign debt swaps. This is one of the rare cases worldwide where plaintiffs won a case against a sovereign lender.
Among important deals, Analytica sold a 45 percent share in Ecuador Bottling Company, the exclusive Coca Cola bottler, for local groups Emprogroup S.A. and Nobis. “We strengthened the position of the minority shareholder in the sale,” says Mr Crespo. Another transaction linked to global heavyweights included negotiating Alliance Capital’s debenture restructuring in mobile phone carrier Porta, now by far Ecuador’s biggest company in its industry, forcing its sale to Mexican magnate Carlos Slim’s América Móvil.
Beyond the local market, the global financial crisis has actually helped to accelerate trading and unleashed potential as clients have restructured portfolios. “The international market has given us a lot of opportunity as there’s a lot of debt that has a market to be reallocated, swapped,” says Mr Checa. Investors with appetite for risk are now looking at red-hot emerging markets not just in Latin America but also Asia. “We structure debt and participate with major international investment banks in the development of debt issuance,” Mr Checa adds. On this backdrop, Ecuador is one of the untold stories, with numerous undervalued assets.
Local companies meanwhile are being aided in structuring their debt optimally and acquiring overseas credit. Dollarisation has helped bring much-needed economic stability to Ecuador, and the oil windfall and remittances sent home have filled public-sector and private pockets with cash. Demand for new cars is so high that Quito, the capital, has introduced restrictions based on licence plate numbers, and cities like Guayaquil and Cuenca are poised to invest heavily in public transit schemes. Retailers continue to expand, with a $100m, 350-store shopping mall – Ecuador’s biggest – that opened early August in low-income southern Quito. Analytica’s early recognition of the area’s potential led it to structure the country’s biggest-ever private real estate project, 8,000-house unit Ciudad Jardín, nearby. “We developed the financial product, sold it to important Spanish real estate developers, and for a time remained as investors in one of the projects with 33 percent,” says Mr Crespo. At the national level, companies like conglomerate Eljuri, grocer La Favorita, and lorry importer Mavesa have grown to establish major local operations – La Favorita dominates both the supermarket segment and the stock markets. Foreign companies are eyeing the growing insurance market. Investors have been snapping up dollar-denominated obligations issued by locally important companies like Pinturas Cóndor or international giants like Nestlé in local exchanges.
In Ecuador, Analytica is uniquely suited to assist small- to mid-sized companies in developing and professionalising their businesses. Many companies here are family-owned or run as family businesses, requiring help in both setting up adequate corporate governance and managing debt. Since 2008, in a programme sponsored by regional multilateral development bank Corporación Andina de Fomento (CAF) and the Inter-American Development Bank, Analytica’s brokerage division Analytica Securities has been designated by the Quito Stock Exchange (BVQ) as the sole securities house in Ecuador qualified to design and implement corporate governance programmes for clients. This is an essential tool in creating value for numerous growing clients. A client carrying out this type of organisational review will have easier access to the financial market. CAF, BVQ and Ecuador’s state-owned Corporación Financiera Nacional, among others, provided seed capital for Fondo País, a trust that invests in shares and other securities of select local startups offering high potential and high return. Mr Checa is a director of the fund.
The pointedly heterodox and socialist approach some governments are pursuing, including that of Ecuador, has slowed gross domestic product growth. Banks have been on the defensive, accosted by government reduction of interest rates, fees and minimum domestic deposit rules – all of these with little impact on Analytica given its specialisation. By sheer luck, the government debt default of 2008 came at a time when hedge funds needed liquidity because of the world credit and financial crunch. The subsequent buyback offer at a 35 percent discount therefore apparently found enough takers to be dubbed successful, but isolated Ecuador from the international capital markets. Administrative blunders led to the country’s blacklisting by world anti-laundering body Financial Action Task Force early in 2010, although the administration has taken important, albeit grudging, steps to correct the situation. With external financing arriving slower than expected for government infrastructure projects, officials have begun to make clearer commitments to welcoming foreign direct investment. Following Ecuador’s maverick bond default, in August 2010 Standard & Poors increased the remaining bond’s credit rating to B- from CCC+ with a stable outlook, citing increased willingness to honour the debt. A somewhat toned-down state of the nation speech by President Rafael Correa, also in August, may reflect greater realism.
If Ecuadorean politicians were to get their act together, they could quickly unshackle growth to match that of the blistering pace of Colombia and Peru over the last few years. Slow macroeconomic growth does show the costs of the ever-boiling cauldron of Ecuadorean politics. One of the most dangerous ideas − and one Mr Crespo outspokenly criticised − was a plan to reduce transparency in central bank accounting. The administration has sought to accelerate growth by directing funds deposited by local banks and the Ecuador’s central bank at very low interest rates overseas into investment projects in the real economy. Unfortunately, its own policies have maintained significant uncertainty, slowing the demand for credit. The plan was to sidestep these concerns and give the central bank’s executive board extraordinary discretion over the use of deposits, including the purchase of private-sector securities. Fortunately, the legislature failed to approve the bill. For now at least, the financial sector looks firm.
Like its name indicates, Analytica’s prize-winning team has from the start produced research that sets it apart from its peers. Analytica distributes the Ecuador Weekly Report offering unparalleled insight into politics and the economy compared with both other banks and major media. Written in lively, succinct English, it is one of the top sources of timely information on the country, drawing its content from frank discussions among prominent local and international minds. Its sources include top Ecuadorean business leadership, but also draw on politicians across the ideological spectrum, the diplomatic corps, scientists, journalists, and the armed forces. Analytica is also sponsoring a university in Quito, Universitas Equatorialis, offering degrees in business administration and − because Ecuador is one of the most biodiverse countries on the planet – environmental engineering, with Fundación Natura, the local chapter of the World Wildlife Fund. Analytica executives are in constant contact with academia, as professors, thesis directors, conference panellists and writers of scientific articles. Mr Crespo is also on the board of the Kapawi Lodge, an internationally famous, pioneering tourism project. Deep in the Ecuadorean Amazon, rainforest warriors from the Achuar people now manage a luxury ecotourism resort, supported by the board.
Mergers and private-equity transactions continue even as, irrespective of political noise, companies are growing up. Across Latin America there are thousands of successful, emerging companies with financial needs the big multinational banks aren’t considering given their still relatively small size. Smaller local banks, meanwhile, mostly lack the expertise to handle what these customers are looking for, even as the companies to date lack some financial sophistication. “A large regional market is being created by companies buying and selling but who aren’t necessarily among the biggest,” says Mr Checa. These clients need a tailor-made experience, which Analytica is providing. Analytica is currently advising a Colombian client planning an acquisition in Peru, he adds. Local business groups have bought assets in Peru and even Venezuela. For companies in trouble, Analytica assists them in landing softly. “We also help companies that are going under find a soft landing for all stakeholders, in a country lacking Chapter 11 and similar rules. We have also pioneered in issuing obligations, providing securitisation and helping in debt conversions and their placements” says Mr Crespo, who has vast expertise in trading foreign bonds. Unusually among investment bankers, Analytica’s partners have successful personal experience in industry and business as entrepreneurs. These ventures include world-class flower exports, beverage and supermarket retail, as well as real estate. Real-world experience is one of the reasons for Analytica’s success.
For more information about the Ecuador Weekly Report Tel: (593-2) 222-6640; www.analytica.com.ec
