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U.S. Restricts Travel From Brazil to Stem Coronavirus Spread, Fintech ADDI Raises $15 Million through Quona Capital, Achieving AI’s Promise in Latin America, and More…

Other featured stories include: Latin America’s Corporates Look for Post-Coronavirus Funds; A look at
LATAM Business Weekly
U.S. Restricts Travel From Brazil to Stem Coronavirus Spread, Fintech ADDI Raises $15 Million through Quona Capital, Achieving AI’s Promise in Latin America, and More…
By dataPlor • Issue #72 • View online
Other featured stories include: Latin America’s Corporates Look for Post-Coronavirus Funds; A look at Argentine Telcos’ Investments, Vegan Leather Startup; Le Qara, Among Finalists at MIT $100K Entrepreneurship Competition; Inside LATAM’s Bankruptcy: 10 Board Meetings in 7 Weeks, Stubborn Shareholders, and Looming Payments Prompt Chapter 11 Filing; Walmart Mexico Pays Mexico Roughly $359M in Back Taxes; and How La Zona Marketing is Bringing Beloved Chilean Brands to the World.
By Emmy Berger

U.S. Restricts Travel From Brazil to Stem Coronavirus Spread
On Sunday, The White House imposed restrictions on travel from Brazil, a hot spot of the pandemic in the developing world.
According to Wall Street Journal, under the new measures set for this week, foreign nationals who have been in Brazil within 14 days before trying to enter the U.S. would be banned, with some exceptions. The new travel suspension began on May 26 at 11:59 p.m. ET.
In a statement, Press Secretary Kayleigh McEnany said the move would “help ensure foreign nationals who have been in Brazil do not become a source of additional infections in our country.”
Earlier on Sunday, Brazil surpassed Russia in total confirmed cases of COVID-19, according to data compiled by Johns Hopkins University. Brazil has recorded 347,398 cases of the virus, second only to the U.S.’s 1,639,872. Russia has recorded 344,481.
Fintech ADDI Raises $15 Million through Quona Capital
Last Thursday (May 21), loaning startup ADDI announced it received a capital injection for $15 million in an investment round led by Quona Capital. Other contributors include Foundation Capital, S7 Ventures, as well as returning investors Andreessen Horowitz and monashees.
As reported by Contxto, ADDI- which launched operations in 2018-  has amassed nearly $32 million USD in funding. The Bogotá-based startup plans to make an international leap into both Brazil and Mexico by the end of this year thanks to Quona and friends’ investment.
“Even though the global crisis has delayed our plans a bit, we believe that the market opportunity we’ve found in Brazil and Mexico is just as good as the one we saw in Colombia… This is an additional reason for which we decided to seek out additional resources this year,” stated Santiago Suárez, the fintech’s Co-Founder and CEO. 
The new funds will be used to improve its loaning platform and boost its capacity. ADDI plans to offer its customers support programs in light of the looming economic crisis. 
ADDI marks Quona Capital’s first contribution to a Colombian startup. As a firm specializing in fintechs, Quona already has a substantial presence within Latin America’s fintech ecosystem. Its other portfolio companies include Mexican startups Konfío and Klar, as well as Brazilians, Neon and Creditas.
Achieving AI’s Promise in Latin America
Like many other Latin American nations, Mexico has struggled in recent years with capital stagnation, flagging productivity and a slowdown in labor growth. Many parts of the region face poor education, popular unrest and corruption that hinders economic progress. The widespread adoption of artificial intelligence (AI) could help change some of that in big ways.
As reported by Forbes, in 2017, a major economic study found that AI could spark economic growth across a large swath of the region. The study noted a strong appetite for AI among business leaders and estimated that AI has the potential to add a full percentage point of GDP to five of the region’s biggest economies- Argentina, Brazil, Chile, Colombia and Peru- by 2035. It also predicted that AI could help raise living standards, lower healthcare costs and promote government accountability.
Mexico has major AI ambitions. Jose Murillo, Chief Analytics officer at Banorte—the second largest financial group in Mexico-, told Forbes that Mexico was the first Latin American country to formulate a national AI strategy in 2018, with key objectives outlined for reducing corruption and crime, improving public health and boosting financial inclusion. 
Murillo was hired five years ago as Banorte’s first chief analytics officer, and was tasked primarily with figuring out how Banorte could leverage technology and the bank’s data to extend the life cycle of our customers. 
According to Murillo, 
“At the time, we were able to assess the risk profile of only about one-third of [the 12 million customers at the time]. Many of our assessments were inaccurate, and we were operating without answers to basic questions: Are they creditworthy? What products should we be offering them based on their income and credit profiles?”
Murillo and his data science team then developed a risk-modeling tool, which utilizes machine learning to help better understand their customers. Using natural language understanding (NPU) algorithms, Murillo was able to turn customer conversations into sales opportunities. His team was able to nearly double Banorte’s credit card conversion rate- from 20% to 39%- and have since replicated that approach in other areas of our business.
Today, Banorte is a fully data-driven organization. AI-driven innovations have yielded new revenues exceeding $3 billion in net present value, making the organization one of the most profitable banks in Mexico and the second largest in assets under management. This can be a heavy lift anywhere, but in tradition-bound Mexico, as in much of Latin America, it can be particularly difficult to change organizational culture.
According to Murillo, there are bright spots with AI in the Latin American marketplace, such as autonomous mining in Chile and machine-learning-based tools that let citizens in Argentina report problems like potholes and uncollected garbage. But for AI adoption to expand across the region, we need to make progress in three key areas: 
1. Talent
Latin America must deepen their talent pool. The region has to strengthen academic programs, successfully direct a diverse group of students into them, and make sure those schools are communicating with our business community. It is important to make sure they are funneling academic talent to the right places. 
2. Culture
Latin America has to move organizational culture from one of skepticism to one of data-driven experimentation. Only through pilot programs can businesses and public institutions see the transformation that AI can deliver. When Latin America can do that, the region can more easily defend the upfront investments that successful AI initiatives require.
3. Investment
Latin America needs investment. Policymakers and regulators alike need to help communicate the belief in AI. They need to be proactive in spreading the gospel to the local and international business community. Mexico’s country’s central bank, where Murillo used to work, has its own think tank on these issues, but they can be more proactive.
Latin America’s Corporates Look for Post-Coronavirus Funds
When the coronavirus pandemic reached Latin America, the region’s capital markets slammed shut. Corporates of all sizes rushed for liquidity, pulling down revolving facilities and seeking fresh short-term debt from banks, acting on a history that suggests risk appetite would be slow to return. However, in early May, Brazil saw an IPO come to market. 
Alberto Ramos, Head of Latin American economics at Goldman Sachs, stated, 
“A deeper and prolonged contraction of activity increases the risk of scarring effects… which could delay and undermine the recovery once the viral outbreaks are brought under control.” 
Elsewhere in Latin America, capital markets have reopened in a slightly more orthodox manner.  As reported by Euro Money, sovereigns reopened the international bond market to Latin American credits and the stronger corporates followed. 
The “quasi-sovereigns” and high-grade corporates have navigated the conditions with ease as well. Deals from Colombia’s Grupo Energía Bogotá and Chile’s government-owned copper miner, Coldelco, were able to tighten the pricing on their April deals. Mexico’s Santander and América Móvil also attracted plenty of investor demand.
According to Euro Money, the local debt transactions also aren’t quite as good as they look. 
“Many local banks structure bank loans as debentures and ‘store’ them in their asset management businesses to ensure better capital treatment for the credit. There’s little transparency about whether these deals are fully or partially distributed in the local market, but sources suggest the early deals were not sold widely.”

Daniel Bassan, Head of Global Banking in Brazil for UBS, says international investors are taking a differentiated view of issuers’ business sectors. 
“TMT [technology, media and telecom] are doing well,” he says. “I wouldn’t say they are growing at the same pace as in the past, but they are performing very well in the crisis- along with others such as healthcare and banks. We are more optimistic about transactions coming for companies in those sectors in the short term.” 
Bassan noted that his conversations with sector-dedicated investors are good, but Latin American companies will face strong competition from other companies in regions that are not being as badly affected by coronavirus. 
“We have been encouraging clients to look ahead – our general view is that we are going through a relatively benign window of opportunity in which to issue to extend maturities and eventually to raise equity,” said Eduardo Miras, Head of Investment Banking Brazil at Citi. 
There is no certainty that waiting will lead to improved conditions, however. Latin America was the last region to be hit by the COVID-19 pandemic, but it could end up suffering the most. Banks, including Goldman Sachs in a recent report, have revised their predictions about the length and severity of the downturn. 
Weak health systems and political confusion mean that the lockdowns and social distancing, in place in many regions since the second half of March, will be extended for a couple of months. This could lead to a 7.6% contraction across the seven biggest regional economies in 2020, with the largest expected to be hit particularly hard: Argentina (-8.5%), Brazil (-7.4%) and Mexico (-8.5%) (Euro Money). 
“This extension will generate a deeper and longer-lasting effect on real activity. Furthermore, a deeper and prolonged contraction of activity increases the risk of scarring effects… which could delay and undermine the recovery once the viral outbreaks are brought under control,”  says Goldman Sachs’ Alberto Ramos. 
The deteriorating outlook is particularly true for Brazil – and so far there has been deafening silence from Brazilian issuers of any kind in the international market. 
On May 18, Alessandro Zema, Brazil country head and head of investment banking in Brazil at Morgan Stanley, stated, 
“The vast majority of the frequent issuers – the blue-chip names – came into this crisis having already conducted liability management exercises, and their capital structures were in good shape. In a sense they have the luxury to wait for what they think is the optimal timing, and I think most will be opportunistic. But I do think we will see the first international debt capital markets transaction coming from Brazil in the next few weeks.”
If Brazil’s sovereign team is even a little sensitive to its pricing levels – which it is – then recent developments are not going to help investors pile into a new issuance in the same way as other large Latin American countries. 
Brazil is becoming the new global epicenter for the disease, and the government’s response has gone from ineffectual to counter-productive. 
“President Jair Bolsonaro has seen his rejection of the consensus on science and public health policy lead to the resignation of two health ministers within a month. The pandemic is in danger of spiralling out of control and the economic ramifications are going to be a heavy weight. With the rate of daily deaths still growing in late May, the prospect for reopening the economy seems far away.”
On May 15, Bank of America revised down its 2020 GDP growth forecast for Brazil to -7.7% and the region to -6.8%. In a client note Capital Economics estimates that the markets are charging an additional 50bp of political premium in the spreads of Brazilian sovereign dollar bonds, complicating the decision to issue new debt.
There is little prospect that this risk premium will get better as the political and economic situation deteriorates further. Investors express their view through constant capital outflows, while the currency is the worst performing among all large economies this year – down 46% year to date. 
There are other specific weaknesses to the region’s economy, such as high levels of labor informality, which means extending the lockdown weighs particularly heavily on the poor, as well as institutional weakness in delivering a coherent policy response to health and economic emergencies. This is particularly true of Brazil. The country came into the crisis with bad fiscal dynamics and it will exit with debt of about 90% of GDP and a primary fiscal deficit approaching 5%. The country’s political dysfunction won’t give investors confidence that there will be a consensus to address the resultant fiscal emergency.
Many investment bankers fear that the current benign environment for capital raising may turn out to be a brief window for Latin American corporates to raise much needed cash rather than the beginning of any enduring recovery. If they are right, then the companies who are reluctant to enter the markets now may regret it as they could be left with just banks for funding – and although that source is still liquid, it isn’t limitless. 
Eduardo Miras, Managing Director of Investment Banking for Citi in Brazil, stated, 
“We have been encouraging clients to look ahead – our general view is that we are going through a relatively benign window of opportunity in which to issue to extend maturities and eventually to raise equity. But we don’t know how long this is going to last.”
A Look at Argentine Telcos’ Investments
Because of economic uncertainties related to the pandemic, Telecom Argentina suspended an incremental capital expenditure plan it had for this year. Now, the largest telecom group in the country will (if no further reviews become necessary) invest only the $500 million originally planned.
As reported by BN Americas, in late February, the company was considering a $100 million USD capex boost, to $600 million USD, as quarterly performance was better than the expected.
The program’s suspension, however, will not affect the company’s main transformation programs already underway, namely IT implementations and OSS platform works.
“This year’s capex is half of last year’s.The group invested over 70 billion pesos (US$1bn) in 2019, up 8.3% from 2018.Most capex projects relate to the expansion of cable TV and internet services to improve the transmission and speed offered to customers; 4G services; and the launch of new value-added services” (BN Americas). 
The group has also deployed the unification of its logical network and has defined the new structure for its physical transport network, according to a financial statement, and reportedly plans to convert fixed copper networks to fiber or hybrid fiber-coaxial networks to meet the demand of fixed telephony and mobile services customers.
MOVISTAR 
Telecom Argentina also cites “significant investments” in pricing, billing and customer relationship systems.
Telefónica did not disclose investment figures for Argentina nor its Spanish-language regional subsidiaries, which since November 2019 are grouped as HispAm units. Overall, Telefónica HispAm January-March capex (which excludes spectrum and Telefónica Infra) totaled 325 million euros ($354 million USD), up 9.5% as reported and 19.7% organically year-over-year.
Telefónica said its HispAm investment strategy focuses on the growth of the highly profitable mobile postpaid and fiber accesses and the maximization of asset value.
According to BN Americas, HispAm revenues (2.20bn euros) and OIBDA (502mn euros), fell 4.8% and 10.6% organically, respectively, following the elimination of the contribution to growth from Argentina, Telefónica said.
The company said Argentine contributions were excluded from organic growth from the first quarter, as were capital gains from tower sales.
In the fixed-line business, the company’s move toward fiber progressed, supported by co-investment deals in some countries, including Chile, Argentina and Colombia, with American Tower and Andean Tower Partners.
CLARO
América Móvil, which operates under the Claro brand in Argentina, does not give specific capex guidance. The group admitted it could reduce its previously announced $8.5 billion USD capex for 2020 (which was flat compared to 2019) due to the COVID-19 crisis. The decision will depend on how the crisis progresses during the next quarters and certain projects will be prioritized over others. 
“We can defer part of our capex, an important part of our capex…without sacrificing quality, capacity, availability and always having the best technology,” CEO Daniel Hajj told analysts in a conference call.  
The Mexican group has focused on fiber optics and convergent solutions at Claro Argentina. 
The only specific mention to Argentina in the results call referred to fixed service revenues expanding around 10% in the country.
América Móvil reported nearly 12,000 postpaid net additions in Argentina in the quarter, but nearly 10,000 disconnections in prepaid. The company said it has been promoting the use of digital platforms and seen good adoption by postpaid subscribers and for prepaid airtime recharges. 
Prepaid additions and handset sales, however, have been limited. Revenues in Argentina declined 4.9% annually at constant pesos to 24.8bn Argentine pesos. To maintain profitability, the company reduced costs and expenses by 8.9% year-on-year in the country.
Vegan Leather Startup, Le Qara, Among Finalists at MIT $100K Entrepreneurship Competition
The MIT $100K Entrepreneurship Competition for the “Launch” category took place on May 21, where eight participants from around the world presented their pre-recorded pitches, then answered judges’ questions about their projects. The winner could earn $100,000 to help their startup go to market. 
Among the finalists was Peruvian Le Qara, a company that showcased its business plan to market its eco-friendly and vegan leather. Last November, Le Qara was the winner of the LATAM 100K competition, where it won $55,000 USD.
In her pitch, Le Qara’s Co-Founder and CEO, Jacqueline Cruz spoke of how the natural surroundings and river in the city of Arequipa have been devastated by the tanning industry in the region. This problem is not unique to Cruz’s native Peru, however, but is a worldwide issue.
“The leather industry is the fourth most polluting industry…It kills nearly four billion animals. It uses 400 billion liters of water [per year]. For example, to make a pair of leather shoes you need approximately 8,000 liters of water,” she stated in her pitch. 
Cruz also pointed out the exposure to cancer tannery workers are faced with. In response to these challenges, Le Qara created a vegan, eco-friendly bioleather.
As reported by Contxto
“This slick and unique material is made of microorganisms that are fed plant and fruit residues. Meanwhile, Le Qara assures its product can be bio-engineered to alter its texture, thickness, and flexibility.”
The Peruvian startup is currently in the process of producing pilot products, and paperwork for patenting the process of making this bioleather has been filed. To create an additional layer of legal protection, the startup also intends to file a patent for the composition of the product itself.
According to the pitch, Le Qara expects to hit the industrial scale of production by July of 2022 where it will fully commercialize its bioleather.
Inside LATAM’s Bankruptcy: 10 Board Meetings In 7 Weeks, Stubborn Shareholders, And Looming Payments Prompt Chapter 11 Filing
Latin America’s largest airline LATAM filed for Chapter 11 bankruptcy in New York with aircraft related debt at $2.2 billion (as of April 30) from its five largest secured creditors. An updated and full creditor list is expected to be disclosed in coming weeks. 
According to Forbes, LATAM ended 2019 with debt of $18 billion and assets of $21 billion. The airline plans to continue flying across all its national units, only some of which are in the filing.
The LATAM board met weekly on Tuesdays in April and then stepped up frequency. On May 25, the board met for the tenth time in seven weeks- this one being the most pivotal. On Tuesday, the board authorized (via videoconference) to put Latin America’s largest airline group in Chapter 11 bankruptcy restructuring. 
Forbes reports that LATAM spent two months renegotiating costs, but urgency was gaining. Airlines worldwide are concerned that aircrafts and other property could be seized.
LATAM missed three tranches of debt payment on May 15, prompting Fitch to warn creditors were in a “more vulnerable position.” Fitch’s recovery scenario assumed LATAM would enter bankruptcy reorganization.
LATAM CFO, Ramiro Alfonsín was concerned about the $187 million in payments due in late May and early June, he said in a court declaration. According to Forbes, that comprised $130 million for debt servicing and a $57 million shareholder dividend due on May 28.
LATAM wanted to defer the dividend and 90% of voting shareholders agreed, but Chilean law requires unanimous approval.
“If LATAM did not file [Chapter 11], payment of these obligations…would substantially erode LATAM’s cash position even further and deplete resources needed to maintain operations, Alfonsín said. 
After LATAM missed the May 15 debt servicing, Fitch warned a 15-day grace period could still result in LATAM defaulting, creating a domino effect.
“The presence of cross default clauses in other financial obligations would allow those creditors to declare default and begin enforcing remedies,” Fitch said.
After almost two months of renegotiating with creditors, the board decided Chapter 11 was best for the company and creditors, according to disclosed board minutes. LATAM believes “fundamentals of their business remain strong” and the group will continue to be South America’s leading airline once the industry recovers (Forbes). 
“Under Chapter 11 proceeding LATAM Airlines will have the opportunity to restructure its financial balance and adjust the size of its operation to the new reality,” it said in a regulatory filing.
Walmart Mexico Pays Mexico Roughly $359M in Back Taxes
Walmart de Mexico said Monday it has paid the Mexican government the equivalent of about $359 million in taxes for its 2014 sale of a restaurant chain known as VIP’s after tax authorities demanded it.
This payment appears to mark a victory for President Andrés Manuel López Obrador, who has railed against what he claims to be tax evasion by big companies.
On Monday, Walmart confirmed it had paid the tax bill, but it was unclear if Alsea, the buyer, would have to pay anything as well. Fox Business reports that Alsea, which operates restaurant chains, claimed it had paid all its taxes.
López Obrador has played hardball with companies before. In 2019, the Mexican President forced gas pipeline companies to renegotiate contracts he said cost too much. In addition, López Obrador has forced companies from the U.S., Canada and Mexico to restructure fees and accept about 30 percent lower profit margins.
How La Zona Marketing is Bringing Beloved Chilean Brands to the World
Chilean marketing and licensing agency, La Zona Marketing Global, has been responsible for developing the brands, products and licensing programs for some of the most popular children’s brands in Chile. 
In less than ten years, brands like  Ratoncitos Dulces Sueños and Mi Duende Mágico have grown exponentially in the region. What started out as toy brands have expanded immensely- with licensing to become a vital property in Chile across various verticals. 
Bernardita Astaburuaga, partner and business director at La Zona Marketing Global, believes that the brands have become a success in the area because they tap into the importance of family values and the ideas fundamental to what it means to be a kid.
“We think they have become the most popular toys in Chile because both brands are very connected with family values, traditions, and emotions, and because they touch the most inner emotions of little ones as well as grown-ups, with soul and fun,” said Astaburuaga in an interview with License Global
Ratoncitos Dulces Sueños (Sweet Dreams Mice) was created in 2015 by a cross-functional team in Chile. Over the last five years, the brand has expanded into toys, clothes, digital content, publishing, apps, and events. Today, the brand has over 30 characters and is looking into expanding into new verticals and expanding the brand globally.
“Our brand has become a remarkable marketing study case, with more than one million plush toys sold only in Chile, achieving the first place in views digital content and social media every launching season,” reports Astaburuaga.
Mi Duende Mágico (My Magic Friend), La Zona’s other major brand, is a holiday-focused brand that celebrates the bright spirit of Christmas; featuring 60 characters that represent the season. 
To date, the brand has been responsible for the sale of over five million plush toys, 30,000 book purchases, and the launch of a show and various apps and apparel in Chile. In 2020, La Zona now hopes the brand will bring joy to consumers across Chile this holiday season following a challenging year due to the COVID-19 pandemic.
“Regarding Mi Duende Mágico, we will bring a piece of happiness after the worldwide crisis by launching the most magical Christmas music collection you have ever seen, with a strong product brochure and shiny contents… Elves, reindeers, and pet toys will be part of the new collection, but our star product will be a cute puppy toy [designed to help spread awareness for] children with cancer. All our incomes from the sale of this plush toy character will be donated to a non-profit organization dedicated to children diagnosed with cancer, of some of the poorest Chilean families,” added Astaburuaga. 
Moving into the future, La Zona has big plans for these two companies. The agency is already working on developing TV shows with the first draft of 3D animations already in development. 
License Global reports that along with the TV series, La Zona is now looking to work with licensors outside of Chile, and is seeking reliable partners to take its big brands into new markets. The company has already expanded into other Latin American countries through its partnership with retailer Cencosud. 
“By working with Cencosud, one of the largest retailers in South America, we have been able to prospect new markets in the region…But these initial efforts have been not enough for the complete development of our portfolio of contents and product categories. Hence, our reasonable steps should be to first fully grow in the Chilean market, followed by Mexico, and then conquer the world,” said Astaburuaga.


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