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Koreans look to broaden LatAm investment

Sep 17, 2013

As South Korea increases and diversifies FDI to LatAm, companies see more space for non-government bank lending

While Korea's investment and lending in LatAm are perhaps overshadowed by China's and Japan's, Korean entities are aiming for a bigger role in the region, particularly if more of the country's banks beyond development lenders can get involved.

"Some of these deals can be done better if the banks in Korea are more supportive and provide a more solid funding structure," said Lawrence Lam, director at Samcorp, speaking at the recent LatinFinance Latin America Korea Investors Forum in Seoul.

While oil and gas and mining have been among the most important areas for investment to date, Lam says manufacturing will provide more opportunities going forward. This will open up new channels for investment. A key will be developing local partnerships with LatAm companies, something which the Chinese have not exploited fully in their bids for projects.

So far, most of the lending has been through government-backed institutions such as the Export-Import Bank of Korea (Kexim), but there may be space for private sector lenders to be involved as Japan's have been.

Lam highlighted Mexico, Chile, Colombia and Peru as offering opportunities in the short to medium-term. Korean EPC providers have been involved in Mexico's power sector, and the energy reforms now being discussed should open up additional opportunity.

"The Pena Nieto government is addressing structural reforms. Ongoing reforms will lay the foundation for development to which Korean companies and development banks can contribute," said Yong Hwan Kim, president of Kexim.

ECAs and multilaterals are capable of providing funds and initiating important relationships - most notably this year as part of a $1 billion financing for the AES and Mitsubishi Cochrane power plant in Chile - but they can run into funding caps in some countries, said John Kim, head of international finance at SK Engineering and Construction, leaving more room for the private sector to participate.

While Kexim's Kim highlighted Mexico's infrastructure project potential, Mexico, Brazil and others need to advance their buildout to offer more opportunities for Koreans.

"There are a limited number of projects that we can look at for EPC. That is the challenge with Latin America," said Moo Hoon Kim, team leader of the power business of Samsung, noting that his priorities are Mexico, Chile and Brazil.

On the asset management side, Korean investors are increasing participation in high-quality USD bonds from LatAm issuers along with other Asian investors, said Hugo Sarmiento, CFO of CAF. A won-denominated bond is not out of the question for his institution.

"In the past we have been looking at the Korean market. The opportunity just didn't open up with the right economics for us," Sarmiento said, referring specifically to the swap rate back to dollars.LF



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