FIRST MOVERS

Colombia 2015 | ECONOMY | INTERVIEW

TBY talks to Luis Carlos Sarmiento Gutiérrez, CEO of Grupo Aval, on beating the economic odds and thriving during a downturn, listing on the NYSE, and financing 4G infrastructure development projects.

 Luis Carlos Sarmiento Gutiérrez
BIOGRAPHY
Luis Carlos Sarmiento Gutiérrez has acted as President of Grupo Aval since 2000. He acted as President of Cocelco S.A. from 1997 until 2000. Previously he served as Executive Vice President at First Bank of the Americas in New York and as an analyst and financial manager at Procter & Gamble’s corporate headquarters. He has been the Chairman of the board of directors of Banco de Bogotá since 2004 and of Corficolombiana since 2006. He holds a BS, magna cum laude, in civil engineering from the University of Miami and a MA in Business Administration with a concentration in Finance from the Johnson Graduate School of Management at Cornell University.

The Colombian banking sector saw growth figures of around 11% in 2014, which is mirrored closely by Banco Bogotá, your principal bank. Could you give us a brief overview of what you believe to have underpinned this rise?

We look at our growth during 2014 in two ways. On the one hand, there was a slowdown when compared to the growth of previous years. On the other hand, it represented rather healthy growth when compared to other Latin American countries and when compared to the country's growth of around 4.5% in real terms. More importantly, Colombia's financial sector showed adequate provisioning of its loans, transparent and strong balance sheets and good capitalization ratios. Additionally, there were sustainable and adequate returns on equity.

Your listing on the New York Stock Exchange (NYSE) was a long awaited move. Why did you feel last September was the right time, and how will this listing change the future direction of the group in the medium- to long-term?

The strategic benefits are easy to enumerate: deepening the ownership structure of the group in terms of attracting more sophisticated global investors, increasing the liquidity of the stock and benefiting from better analyst coverage internationally. We did have to do an enormous amount of previous legwork prior to even consider entering the NYSE; specially, because we wanted to do so with a fully registered stock. Among the most important milestones that we hat to achieve were the reconciliation of our financial statements into US GAAP and compliance with Sarbanes-Oxley. It is worth mentioning that years prior to our NYSE debut, we had already launched an IPO in Colombia and several follow-ons. As a result, by the time the market was right to launch our New York offering, we already had about 60-70,000 small local shareholders.

You plan to finance COP12 billion of 4G projects and participate as financier and constructor. Could you talk us through your strategy in terms of maximizing value, and how you want to lead this process?

The financial system in Colombia is large and robust enough to finance 4G on its own. The total investment value to build the three waves of 4G infrastructure roads is about COP45 billion. Of that, the financial system had to finance about COP40 billion, which includes capex and some opex. This amount (COP40 billion) is about 11-13% of the nation's total loan portfolio. If you take into account that this financing will happen in a span of 5 to 7 years, you can easily see that it does not pose an undue burden on the Country's loan portfolio. My numbers have to be somewhat adjusted because one must take into consideration that the banks' loan portfolio is part consumer and part commercial, but the point I am making remains the same. Also, in the presence of the slowdown of the economy, 4G becomes a great source of growth for the banks and the country. I have told the Government that it does not have to look any further, and that the banks are willing to and capable of financing 4G. Some involvement of foreign lenders will probably be needed if concessionaires request that the Government repays up to 25% of their total investment in dollars, as the law currently allow them to do. Aval will also participate in 4G as a concessionaire through our merchant banking arm, Corficolombiana, which is the largest toll road concessionaire in this country; with the toll roads that it has already been awarded under 4G, it will consolidate itself as such.