BVC THE OPPORTUNITIES

Colombia 2015 | FINANCE | REVIEW: CAPITAL MARKETS

Having won international applause and braved lean years, the BVC today is a well-differentiated platform primed for tomorrow's demands from local market and further afield.

The Colombian Securities Exchange (BVC) dates back to the first year of the 20th century, and today's incarnation arose from the 2001 merger of the formerly independent exchanges of Bogotá, Medellín, and Cali. For 2015 the BVC anticipates 1.5 million individual investors.

In October of 2013 British business title Capital Finance International named Colombia the best stock exchange in Latin America. That year was to prove tough for Latin bourses, yet as Colombia Reports reveals Colombia emerged as the second most unharmed in market value terms (behind Mexico) among Latin American bourses, which largely declined. Mexico's exchange lost just 2%, while the BVC shed 12.3% for 2013, as investors redirected wallets to more robust markets beyond the region; the steepest decline (-23.6%) was that of Peru.
By 2013, the MCap of the BVC bore a 56% weight of GDP in 2013. And today, the bourse rightly bills itself as a multi-product and multi-market securities exchange, and as such is a crucial vehicle of national growth and international credibility. This is only befitting for a country that has enjoyed investment grade rating since 2011. The BVC, too, has benefitted from political stability, as well as fiscal and regulatory prudence. In a TBY interview Minister of Finance Mauricio Cárdenas commented that, “The Ministry of Finance is completely committed to the fulfillment of fiscal rule in order to guarantee macroeconomic stability, as well as to continue nourishing confidence in our country.” And the consequences are clear to see in a raft of welcome core data prints; single-digit inflation since 1999 (3.7% as of YE2014), while FDI has risen by a 12% CAGR and total FI has appreciated by a 23% CAGR since 2010.

WHAT'S IN STOCK?

The equity market hosts 74 listed stocks as of 2014, prominent among which is Ecopetrol, listed in 2007. The greatest weight in the index, it had a market capitalization (MCap) of $34.7 billion as of April 14, 2015. This strategic asset, 88.5% state-owned, enjoys further liquidity by also being listed on the New York and Toronto exchanges. A profitable address, the average dividend yield at the BVC since 2011 has been 5.6%, while since 2009 the compound annual growth rate (CAGR) for earnings per share is 14.4%.

2014 AT A GLANCE

Equity market issuances as of YE2014 stood at $12.8 billion. And according to the BVC—the fourth largest bourse in Latin America—Overall MCap saw a CAGR from 2003 to 2014 of 22%, while that of the equity market was at 36%. The capital markets at large as of YE2014 had a trading volume of $785.9 million. The average daily trading volume (ADTV) had reached $3.3 billion, while the 2003-14 CAGR posted at 12%. The equity market's ADTV as of December 2014 was at $83.1 million with an Mcap of $262.2 billion. The COLCAP Index of 20 most liquid stocks lost 5.81% for the year. Year-to-date as of end-March 2015 the index had lost 4.8%. The top three stocks by MCap as of April 14 were Ecopetrol on $34.7 billion. Second was Colombian holding company Grupo Aval Ccciones y Valores—diversified in financial activities, telecommunications and real estate, and active in Colombia and Central America—on $10.8 billion. Third was and Bancolombia on $10.3 billion. The MCap of the top 10 equities as of April 14 was $99 billion. Meanwhile, the IGBC index (trading the most liquid 30 stocks) rose to 10,260.24 in April 2015 from 9,998.85 in March. From 2001 to 2015 the index has averaged at 8,556.16 peaking at 15,899 in October of 2010, and troughing at 776.54 in October of 2001.

BONDS

Rating agency Moody's in July 2014 upgraded Colombia's government bond rating a notch to Baa2, confident in robust growth rates and potential growth to be reaped from the Andean nation's infrastructure plan estimated at $25 billion. The agency, which simultaneously amended its outlook from positive to "stable" foresees Colombia's economy growing by between 5% and 5.5% over the next five to 10 years.
As of December 2014 fixed income trading accounted for 70% of capital market distribution. The BVC is the 6th largest fixed income market in the world according to World Federation of Exchanges. The fixed income ADTV up to December 2014 was $2.3 billion, with 90% of volume going to government bonds and 10% to corporate debt. The CAGR from 20104 to 2014 was 8%.

And 2015 is set to be a solid 12 months too, considering the $2.1 billion demand for corporate debt issuances observed in 1Q2015. BVC data put the amount placed at close to $1.2 billion, while demand exceeded what issuers offered by 1.8 times. The 1Q2015 amount in fact exceeded that of the same period of 2014 by five times, being the third best print of the past five years. As of March-end, six issuers had resorted to the capital markets in 2015. These were Davivienda ($289.5 million), Banco Popular ($165.4 million), Terpel ($165.4 million), Promigas ($165.4 million), Leasing Bancolombia ($165.4 million), and EPM ($260.6 million). In the words of the BVC's CEO Juan Pablo Córdoba, “These results show that there are always tools available on the capital market for financing companies, but in addition, for investors to diversify their portfolios with low risk securities at the times of high volatility we are going through." Official data breaks down the resource placements at 48% from the real sector and 52% from among finance enterprises. The six transactions saw bonds offered for terms ranging between two years (Banco Popular) to 20 years (EPM).

Further confirmation of returning foreign confidence in Colombia was its successful placement of a $1 billion bond issue on the global debt market in April. Oversubscribed by around 100%, it was purchased by US, European, Latin America and Asian investors. The sovereign 30-year bond issue, matures in June 2045, and has a yield of 5.041%, making for a total raised of $2.5 billion.

MILA—Three Become Four

A listed private enterprise, the BVC in 2011 moved to boost liquidity levels by linking arms with Peru's Lima Stock Exchange (LSE) and Chile's Bolsa de Comercio de Santiago (BCS). The resulting entity, MILA, established the third largest liquidity lake in Central and South America after the Brazilian and Mexican markets. MILA amounts to regional visibility by diversifying the instrument rage, and naturally enough benefits from economies of scale, by leveraging the pedigree of three mature markets. In short, more liquidity, more issuers, and more investors, and what the investor gets is the ability to trade in the equities, fixed income, and derivatives of more than 700 companies across four markets. While the respective regulators of member nations work to MoUs, investors must comply with the tax regime of a security's country of origin.
As of December 2014 MILA boasted a MCap $945 billion and 791 issuers, while its equity trading volume registered at $215 billion. BVC regulations stipulate that omnibus accounts— a stock holding account involving multiple investors—are not permitted at the BVC, except for the MILA window.

FUTURES SHOCK

Opened for business in September 2008, Colombia's local Standardized Derivatives Market became the fourth source of these instruments in Latin America. Third Derivatives market in Latin America. With a nominal amount of $537.7 million, trading in standardized derivatives struck a historic peak on March 4, 2014, ratcheted 24.7% above the previous high of $413.6 million on April 18, 2013. And as of December 2014 the average daily traded volume was $161 million. Meanwhile, the Fx market print was $910 million. The latter market's wholesome CAGR performance from 2003 to 2014 was 12%.

Colombia's internationally acclaimed capital markets stand on the shoulders of economic stability, and are well regulated and diversified. Yet its equity market remains susceptible to the prevailing climate of low oil prices, given the principle COLCAP constituent, Ecopetrol. Meanwhile, the newly enlarged MILA market opens the tap on liquidity and investor reach.