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The Ritz-Carlton, Chicago

Chicago – Apr 14-16, 2013

ICTF's Global Credit Professionals

Symposium

Latin America Review

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Walter Rebello 1978 to 1997 – Dow Chemical Brazil and Latin America.

1987 to 1992 – Credit Mgr – Dow Brazil in Sao Paulo

1992 to 1997 – Credit Mgr – Dow Latin America in Coral Gables / Sao Paulo.

1997 to Date – Ravago Group

1997 – 1999 – Credit Mgr Muehlstein Latin America in Norwalk CT

1999 – 2001 – Credit Mgr Muehlstein International in Norwalk CT

2001 – 2006 – International Credit and LA Finance for Muehlstein in Norwalk CT

2006 – Jul 31st 2012 – Ravago Corporate Credit Mgr in Orlando FL

Aug 1st 2012 to date – Ravago Sr Credit Mgr – Latin America – Houston TX

Board Member of ICTF

Have served on the board of several association, including:

NCCA – National Chemical Credit Association

PlastCred – Brazilian Credit Association for the Chemical/Plastic industries

Graduated in Business/Finance with Fundacao Getulio Vargas (FGV) in Brazil.

Post-Graduation in Business/Computer Sciences with FGV in Brazil.

Ravago Plastics Resins and Rubber Business – recycling, re-process,

trading, distribution and compounding.

Belgian corporation.

Headquartered in Orlando FL for the Americas.

5,000 active customers in N America and 4,000 active customers in Latin America.

Team of 28 credit professionals. Half for Domestic and Half for International.

My experience in the past 16 years is mainly on the industrial sector of any plastic converter – from T-Shirt bags for supermarkets, all sorts of packaging (food, drugs, etc..), to construction, high-tech industries, auto industries, etc…

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Top 100 Airports in the World – by

million of passengers in 2011 1 USA Atlanta 92

2 China Beijing 77

3 UK London LHR 69

4 USA Chicago ORD 67

5 Japan Tokyo Haneda 62

37 USA Newark NJ 33

45 Brazil Sao Paulo GRU 30

51 Japan Tokyo Narita 28

52 Mexico Mexico City 26

58 USA New York LGA 24

72 Colombia Bogota 20

73 Italy Milan 19

89 USA Tampa 17

90 Brazil Sao Paulo CGH 17

91 Brazil Brasilia 16

96 Brazil Rio de Janeiro 15

Latin America 70’s/80’s Venezuela was the only country in good shape. With a lot of oil,

hard currency and a democratic government.

The majority of the other countries were under a military dictatorship, no democracy, no oil (except Mexico, Ecuador and Venezuela), very high inflation, very high devaluation, no savings, no development and no hard currency to buy even “OIL”.

Exchange controls in most of the countries. Dollar availability always an issue.

Brazil starts the Ethanol program due to the lack of Oil and hard currency to import oil.

Most of the region was submerged into a Foreign Debt – that could never ever be paid.

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Latin America – 90’s

Chile comes out as the rising Star. They are up to date.

Argentina – Carlos Menen years. Peso = USD. Decade of growth.

Mexico – gets to NAFTA. Has its ups and downs but a lot of

growth till 1994.

Brazil struggles with the impeachment of the 1st elected president

in 30 years. Stabilization of the economy and important changes in

legislation came in the 2nd half of the 90’s.

Colombia and Peru fighting against the guerillas.

All other countries trying to cope with their problems.

At the end of the 90’s Mexico and Chile were the only Investment

graded countries.

Latin America – 00’s Brazil political and economical stability – tremendous growth.

Chile continues as the Switzerland of Latin America.

Peru and Colombia – tremendous growth.

The Financial Global Balance changes. Latin America becomes the primary source of additional natural resource the world economical growth demands. Mainly pushed by China/BRICS and the Arab Countries.

Mining, Agricultural, Fuel, Bio-Fuel.

Heavy industrial sector in Mexico and Brazil.

Argentina dips into a huge economic/political turmoil in 2001.

Chavez in Venezuela.

Friends of Chavez group: Ecuador, Bolivia, Nicaragua and Argentina.

Brazil, Peru and Chile – basically paid their foreign debt and sit on huge international reserves.

Court procedures are more efficient but still need decades of improvement.

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Latin America – 2000 - 2012’s

Investment Graded Countries:

Chile

Brazil

Peru

Colombia

Panama

Mexico

Uruguay

Trinidad & Tobago

Some Caribbean Islands

Country Risk Final Statements Venezuela – Highest Ranked Latin America Country in the 70’s/80’s

Argentina – One of the top economies in the World in the 50’s and 60’s

IN THE CREDIT WORLD NOTHING CAN BE TAKEN FOR GRANTED:

That means that either Mexico, Chile, Peru, Colombia and Brazil could be in the wrong side of the list in a decade or so.

Like companies in a way:

Where was Pan American 30 years ago and today?

Where was Apple 20 years ago and today?

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S&P – Sovereign Credit Ratings - 2011

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Country Risk Map

Commercial Risk

Who has had a write-off in:

Mexico?

Brazil?

Chile?

Who has had a write-off in:

Ecuador?

Argentina?

Venezuela?

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Commercial Laws / Court System There is no such thing as the Latin America Commercial Laws

There is not such thing as the Latin America Bankruptcy Laws

There is no such thing as a promissory note or pagares format for

Latin America

Latin America is just a geographical region without ANY common

laws or court system. Each country is totally independent.

I usually panic when someone asks me “What is the best way to act

in Latin America?”

LATIN AMERICA is just a geographical region

Credit Reports Credit Reports are as good as the source of information one

can get.

Excellent in Brazil – Serasa data base.

Decent in Chile, Colombia, Mexico, Peru and Argentina.

Data of a Credit Report:

Ownership

Address

Court Activity

Payment Experience – almost 100% of the credit reports I have seen in my life, it is just local experience in the country in which the customer is located.

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Financial Statements Easy to get across the board in Latin America.

Requirements of “audited or not audited” change by country.

But again, it is easy to obtain. It is a commercial practice to hand financials for credit.

Most important items to be careful or that require a different mind set when analyzing them:

Level of Liquidity in the country

Cost of Money

Devaluation – which assets are exposed and which are not

Inflation

Picking 1 out of up to 5!!!!

Level of Liquidity Double/Triple A Companies in Double/Triple A Countries are

usually fine with 90% Debt and 10% or less of Tangible Net

Worth.

Double/Triple A Companies in high risk countries require a

much bigger capitalization or they might get easily into trouble

because the country’s financial system does not have enough

money to fund the needs.

Countries with low level of liquidity in Latin America today:

Ecuador, Argentina, Venezuela – usually pretty connected to

the country risk.

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Cost of Money Not directly connected to the country risk level as it can be used

as a monetary policy – so it can be politically manipulated for good or bad reasons.

Very important when reviewing the financials to calculate the cost of debt.

Brazil – Very high Cost of Money – 13-15% per year for 5% of inflation – so real rate is 8-9% per year. Central Bank uses high interest rates to control inflation. Ok short term. Not good long term.

Argentina – Cost of Money around 15-18% per year. Official inflation around 8% but real inflation around 25%. So real cost of money is negative.

Those are extremes – but they happen and in big countries!!!!!

Devaluation or Valuation

In the past 10 years the valuation of certain currencies in

Latin America such as the Chilean Peso and the Brazilian Real

was a huge issue.

Last big Devaluation was Argentina in 2001 – 200-300%.

Countries to watch – Argentina, Venezuela, Ecuador, DR.

When reviewing financials, pay attention to assets and

liabilities impacted by devaluation, especially in the higher

risk countries.

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Inflation

Again – Argentina, Venezuela are on the top of the list.

Which assets and liabilities are more sensitive to inflation.

Very important to address those questions directly during

customer visits when not clear.

Customer Visits Because of the lack of credit reports and because of the higher

country risk, depending on the level of exposure you have in your accounts, customer visits are a must.

Meeting the owners/family.

Checking the facility.

Level or lack of sophistication – machinery, process, market, financial expertise (currency hedging, A/R management, credit policy, insurance – all sort – from property to Credit Insurance).

Creating your own communication channel with the owners/managers.

Reviewing doubts on the financials. So difficult to ask by email or phone and so easy to discuss personally.

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Guarantees L/C’s

Stand by L/C’s

Bank Guarantees

Mortgage

Machinery

Personal Guarantee

Promissory Notes/Pagares – BTW – they are NOT a guarantee

Guarantees execution is always connected to the legal system/court of where you took the guarantee. A mortgage in Nicaragua has to be executed in their court.

Protesting in Latin America It is something we do not have in the US.

In Latin America official documentation, notarizing a signature,

purchasing and selling an asset is all recorded in a Public Notary

House.

It is also the 1st step to enter a lawsuit. You have to take your non

paid invoice to a Public Notary and record publically that a debt

has not been paid. The Public Notary will notify the debtor in

writing and grant X days for the payment. After those X days, if

payment is not made – your non paid debt is “Protested”.

Commercial Laws as stated before are different by country, but

here are a few examples of what protesting can mean:

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Protesting - Examples Peru – After 15 days of the due date of an Accepted Draft or Pagares, if you do not

protest – legally you lose the accepted draft of the pagares – and you will have to go to court as a regular creditor and not a creditor with a Debt Acceptance.

Brazil – all protested non payments are informed to Serasa daily – so the credit reports will say that a given company has had protested debt.

Majority of the other countries – when you protest – it will be on the public records.

Now how to protest? You basically need someone locally

You have to follow each country’s rules

Brazil for instance – the document has to be in Portuguese and amount in local currency – so you have to pay an official translator to translate the original documents and the amount of the debt will be converted according to the exchange rate of the day you protest.

SO IT IS THE 1ST STEP BEFORE GOING LEGAL AND IN MOST COUNTRIES THE PROTESTING RECORDS ARE PUBLIC AND CAPTURED BY SOME CREDIT AGENCY REPORTS.

Credit Insurance First time I heard about credit insurance back in the 80’s from my

boss at Dow – I thought he was not happy with me and that I should start looking for another job.

As time goes by we all begin to understand it more, including its advantages.

So if you cannot travel, if you cannot get to know your customers well, if you cannot get a good guarantee – Credit Insurance is the best and the cheapest solution with added advantage on the financial side of your company.

Make sure you are a partner of your credit insurance company and that they are your partners. There are difficult moments that require a very good mutual understanding of the business and each other.

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Argentina Population is 41 million.

High Inflation.

Lack of USD / That is the reason for all the exchange controls.

Market has not forgotten the 2001/2002 default when they paid 25c for each $1 in debt.

Lack of investments.

Still the best educated country in Latin America.

All their output if not consumed internally, Brazil will today. So industrial sector is at 100% capacity.

Domestic Terms are long / 3rd party post-dated Checks.

Best credit information available - the amount of “bounced checks” in the market.

Tips on Argentina

www. http://www.bcra.gov.ar/ and go to “Central de

Informacion” with Tax ID: CUIT

Information updated daily about NSF checks and monthly

about local bank risk rating.

Before Shipment, review always the BCRA website to

confirm there is not bad news recently. It is FREE.

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Peru

Population 30 million.

Mining, Mining, Mining.

Economy so far has not suffered with the Global Crisis. Brazil

and Mexico did but not Peru. Even their currency value has

not changed against the USD.

Country is changing as we blink our eyes.

Lot of investments in infra-structure and in the agricultural

sector.

Local terms are not long as Argentina/Chile.

Decent Credit Reports – but without any special features.

Tips on Peru

Check tax activity at SUNAT on line at:

http://www.sunat.gob.pe/# at “CONSULTA RUC”

Superintendencia de Banca y Seguros:

www.sbs.gob.pe

Peru – a unique “Draft” to comply with Peruvian law that

must be protested up to 15 days after due date.

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Colombia

Population 47 million.

Guerillas, Pablo Escobar, Drug Cartels War, not safe to travel

– those are comments from the past.

Country is growing, stable. A lot of stable mid-size

companies.

Agricultural, Flowers, Construction are the main business.

Only South American country on the Atlantic/Caribbean and

Pacific.

Lots of investment in infra-structure.

Like Peru – Decent Credit reports.

Tips on Colombia

DIAN http://www.dian.gov.co

https://cifin.asobancaria.com/cifin/

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Brazil Population 197 million.

Major cities: Sao Paulo (20), Rio (12) – then 10 cities between 2 an 6 million people.

Mining, Agricultural (Orange, Soya, Sugar Cane, Coffee and Beef), Industrial (Cars,

Machinery, Equipment, Airplanes, Pulp/Paper, Textile).

Power – Oil & Gas, Water, Sugar Cane/Ethanol.

From the biggest Foreign Debt in the World between the 70’s – 90’s to 4th bearer of US

Treasury Bonds and reserves of $400 billion.

Mostly of the Business are Local and not Import.

Local Business

Short terms

Electronic Invoicing

Automated Bank Payment System

Getting ready for the 2014 World Cup and 2016 Olympics

Lot of infrastructure projects all over the country - subways systems, roads, airports,

high-speed train, ports, etc.

Brazil

To Watch Dependency on China/Asia /EU

Infra structure investments

Infra structure reality check – Funds are available and they cannot have it done

Stability – Political/Social/Economic – Presidential Elections Oct 2014

Currency

Cost of Money

Commercial Credit Risk

Hopefully a win in the Final 2014 World Cup Game!!!!!

Very Good Credit data on any given company.

Serasa – what it is and where does it come from.

Bank Collection System.

Brazilian Investments Outside – Oil, Petro-chemical, beer, ketchup!!!!!

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Tips on Brazil

Credit Application: general, credit and commercial

information, it is not a binding document. DO NOT

FORGET the TAX NUMBER, “CNPJ”

“Relato Completo”

http://www.serasaexperian.com.br/consultas/relatorio-

completo-empresas/

Tax Payment were

current “Sintegra/ICMS” http://www.sintegra.gov.br/

Protesting a Draft – you need a lot of local help. But it can

be done.

Others But not less important:

Bolivia

Ecuador

Paraguay

El Salvador

Nicaragua

Guatemala

Honduras

Panama

DR

Trinidad & Tobago

Tip on Ecuador

Tax information available at : www.sri.gob.ec

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Thank you!!!!