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Delves: What's Driving New Money Into Latin America?

2012 has thus far found primary issuance in Latin American debt capital markets to be flourishing. In fact, over the first six weeks of the year there was $30 billion of cross-border debt issued by Latin American credits, more than all of 2008.

Case in point, in February Jamaica-based telecommunications company Digicel Ltdissued a US$250 million corporate bond offering priced to yield 7.00%. The transaction has been well supported by the international financing community, having attracted over US$2.3 billion in orders from more than 160 different accounts.

What’s creating this gravitational pull for money in this market? With the low-yield environment in the U.S. – and the outlook for the Fed to hold interest rates until the end of 2014 – investors are attracted to the companies that are turning a profit and providing high yields.

Latin America
Stephen Marks | Getty Images
Latin America

What’s creating this gravitational pull for money in this market?

With the low-yield environment in the U.S. – and the outlook for the Fed to hold interest rates until the end of 2014 – investors are attracted to the companies that are turning a profit and providing high yields.

Specifically looking at the mobile telecoms industry, while growth varies from market to market, in emerging economies it’s generally due to a combination of increased penetration opportunities and the growth of complementary revenue streams.

In Haiti – the poorest country in the western hemisphere – over one million people have become mobile phone owners over the past twelve months. Very few of these individuals, if any, had ever had a fixed-line telephone. Penetration is at 50%, so there is scope for further organic growth. Digicel’s belief in Haiti is illustrated by our latest acquisition, Voilà, which will see mobile users across Haiti benefiting from increased investment in even better mobile services and new technology in the future. Data revenues in emerging markets are also growing at a phenomenal rate, yet they still have quite a way to go before they reach the levels experienced in more developed markets (as a percentage of total revenues). Of course in many of these markets, the mobile phone is the only means to surf the Internet.

The decline in handset prices over the past several years has helped make it viable to make a profitable business from lower customer average revenue per user (ARPUs). Handsets with in-built cameras and browsing capabilities can be sold for US$10 or lower, and as such, are much more affordable for lower income customers, whilst the subsidy / ARPU payback makes financial sense due to the lower purchase cost of the device.

Furthermore, the development of complementary revenue streams such as mobile banking is quite unique to emerging markets as well. Many of the customers in these countries have never had a bank account or credit card. Accordingly, the provision of mobile wallets using a standard mobile phone opens up a range of possibilities such as money transfer, utility bill payment and salary payments, which - although commonplace in developed markets - are now only possible in emerging markets through the advent of mobile financial services.

In emerging markets, the mobile phone literally is a stepping stone on the path to a better existence, and as these economies and their technology infrastructures more rapidly develop, this is not only good news for business operators in those markets but also their investors.

Colm Delves, Group Chief Executive Officer and Board Director Digicel. Colm joined Digicel in May 2004 in the role of Group Chief Financial Officer before taking up his current role as Group Chief Executive Officer in June 2005. When he joined the company, Digicel was active in eight markets in the Caribbean having launched its first operation in Jamaica in 2001. Since then, Colm has overseen a fourfold increase in the number of markets Digicel serves and has been instrumental in taking the Digicel brand of best value, best service and best network mobile communications across the Caribbean and Central America. With the addition of six markets in the Pacific to the portfolio, Digicel Group now spans 31 markets worldwide and is proud to serve 11 million customers worldwide.