Billionaire banker makes $3.7 billion bet on Colombia

Alarmed by the prospect of a former leftist guerrilla winning the presidency, investors have pulled cash out of Colombia this year – but one of the country’s richest men is betting billions in the ‘other way.

Banker Jaime Gilinski last month launched a $920 million bid to acquire up to 32.5% of Grupo Argos, a cement-infrastructure conglomerate that is one of South America’s biggest companies. This follows $2.8 billion in bids and buys he made for two other Colombian targets, financial giant Sura and food company Nutresa.

As a partner in the Nutresa and Argos deals, Gilinski – who made his fortune with a series of bank acquisitions across Latin America and is a major shareholder in Britain’s Metro Bank – enlisted the Abu Dhabi royals.

If successful, his bold bids worth $3.7 billion would reshape the business landscape of Latin America’s fourth-largest economy and dispel doubts about Colombia’s post-election economic future. A second round of voting will pit former rebel Gustavo Petro against Rodolfo Hernández, a populist businessman known as “Colombia’s Trump”, on Sunday.

Capital outflows from Colombia doubled in the first quarter of this year, according to the central bank, as wealthy locals moved assets abroad for fear of the possible election outcome.

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“I invest in Colombia because I have confidence in the country,” Gilinski, whose net worth is estimated by Forbes at $4.2 billion, told the Financial Times in a rare breakfast interview in a London hotel. “Even though we live in uncertain times, businessmen must know how to navigate in all circumstances.”

Gilinski’s offerings offer potentially rich rewards. Its three targets, which together form the core of the Grupo Empresarial Antioqueño – a network of companies based in Medellín, the country’s economic capital – are linked by a network of cross-holdings set up in the 1970s to protect them against bidders. hostile.

Supporters of left-wing Colombian presidential candidate Gustavo Petro prepare for a rally in the Fontibon neighborhood in Bogota on June 12, 2022
Supporters of leftist Colombian presidential candidate Gustavo Petro prepare for a rally. Political uncertainty has prompted many wealthy Colombians to move assets out of the country © Juan Barreto/AFP/Getty Images

If the 64-year-old manages to buy 32.5% of Argos, he says he will directly or indirectly control 51% of the three GEA conglomerates as he can turn cross-shareholdings to his advantage. This would allow him to oversee $20 billion in assets, a figure equivalent to 7-8% of Colombia’s total GDP.

Medellín’s corporate elite do not easily give up their crown jewels. GEA has mounted a strong campaign to repel Gilinski’s attacks, portraying the banker as a corporate thief bent on stripping assets, underpaying his targets and undermining the companies’ ties to local communities.

“If these companies are so bad, so poorly managed and so uncompetitive, why is Gilinski paying such a huge amount of money to get them?” asked the newspaper El Colombiano in an editorial.

Gilinski dismisses the criticism, saying his interest lies in improving the operational performance of GEA companies to generate good returns.

“Management was not paying attention to shareholders,” he said. “Cross-holdings were great for managers to retain control, but what did shareholders get? This is why Sura shares have fallen 75% in US dollars over the past 10 years.”

Gilinski says all three conglomerates have strong brands, good operating profits and large market shares. But he argues that cross-shareholdings tie up a lot of capital that could be invested in the core business and generate better returns for shareholders.

Daniel Guardiola, an analyst at BTG Pactual in Bogotá, said Gilinski “was right” in his criticism of GEA management. “If you look at the performance of the last 10 years at Sura and Argos, the total shareholder return has been negative.”

If he were to triumph, Gilinski said, “I will give each of the three companies a very clear direction on their core businesses and as a result their value will increase exponentially.”

Employees of the National Chocolate Factory, a Nutresa group company, work at a packaging factory in Medellin, Colombia, June 25, 2019
Employees of a chocolate factory belonging to Nutresa © Luis Jaime Acosta/Reuters

Gilinski’s father owned snack and consumer goods companies, so his family was able to fund his education in the United States, first at the Georgia Institute of Technology and later at Harvard Business School. After a year at Morgan Stanley as an M&A banker, he returned to family businesses.

Then he spotted an opportunity while on vacation in London, as the 1991 demise of the Bank of Credit and Commerce International made headlines.

“I read in the FT that BCCI bank had collapsed,” he said. “My dream was to be a banker, so I contacted Touche Ross, the liquidators, and asked if I could buy the Colombian business.”

Gilinski said BCCI’s Colombian operation was losing $1.5 million a month when he bought it. “We made it more efficient and rolled out the technology. . . in three years, the return on equity was 25%. »

When the Colombian government privatized Banco de Colombia three years later, Gilinski took another plunge, surprising the Bogotá business establishment with a winning bid of around $360 million for 75% of the country’s largest bank. , aided by funding from Morgan Grenfell and George Soros.

Gilinski cut the lender’s workforce by two-thirds, sold non-core assets and improved efficiency before selling three years later to GEA, a deal that led to a bitter 11-year legal battle between the parties over the financing of the agreement, which was only settled in 2010.

Over the next few years, Gilinski picked up banks across Latin America, acquiring Sudameris in Colombia from Italy’s Intesa in 2003 and HSBC’s assets in Peru, Colombia, Uruguay and Paraguay in 2012, as well only a brief stake in the Spanish bank Banco Sabadell.

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Irish banker Conor McEnroy, who bought Sudameris’ operations in Paraguay around the same time Gilinski bought the Colombian branch, admires his peer’s methods.

“When Jaime is . . . interested in a business, he surrounds it and surrounds it until he is ready,” he said. “He always structures his trades on his own, then enlists the best help available to execute them.”

Gilinski diversified into real estate in 2007, teaming up with the British Livingstone brothers and their company London & Regional Properties to transform a former American base in Panama into a 1,400-hectare mixed-use development housing 300 businesses and 30 000 housing units planned. He also owns a 9.1% stake in Metro Bank.

But the Colombian offers represent his boldest move yet. After six separate takeover bids, he holds 38% of Sura and three out of seven board seats, plus 31% of Nutresa and two board seats – still well short of a majority. This week he asked Sura to hold a special meeting to vote on the sale of his 36% stake in Argos.

Jorge Restrepo, an economics professor at Javieriana University in Bogotá, criticized the way the battle was fought, with the Colombian securities regulator allowing Gilinski to launch successive offers at different prices for different quantities of shares in Nutresa and Sura.

“This is a hostile takeover, which never had a clearly defined end goal,” he said. “It’s also a very high risk because it’s highly leveraged and speculative.”

Guardiola said it would be “not easy at all” for Gilinski to take control. “Holding companies own 45-49% of each other, and then there are local families, who have held substantial stakes for decades.”

Time may not be on the billionaire’s side. Guardiola added: “The longer it takes, the worse it is for him. His current position is destroying value as he has invested $2.5 billion and is earning a 2% return in Colombian pesos at a time when the Colombian sovereign debt pays 11% in pesos I don’t think its funding cost is 2% in Colombian pesos.

Gilinski countered that this was not the right way to look at the situation and that he had already made $1.3 billion in profits on the stocks he had acquired and remained committed to pursuing his goals. He said 65% of the funding required for the deals came from First Abu Dhabi Bank, with the rest coming from the Gilinskis and the Abu Dhabi Royal Family.

“The value of the three companies when we started in November was less than $7 billion,” he said. “Now it’s $14.5-15 billion and the value in 2012 was $30 billion. That gives an idea of ​​the value creation.

“I’m sure we’ll win. It’s a matter of patience, time and perseverance and that’s what I’ve been doing all my life.