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A dynamic approach in Latin America

As an investment bank and trading firm, Bulltick Capital Markets has a strong presence in Latin America with trading desks in Miami, São Paulo, Mexico City and Buenos Aires.

While up to half the business is on the sales and trading side, the firm, through its joint venture with Axis Advisors, a private investment bank with a significant structured finance practice, has also built up extensive expertise in providing highly structured investment opportunities for hedge funds in the Latin American credit risk spectrum.

This business stems from identifying market opportunities that are inadequately covered by the major banks and are capable of delivering above-market returns.

The leading global banks such as Citibank, Bank of America and JP Morgan are present in markets like Mexico, Argentina and Brazil, but they tend to cater to local blue-chips, such as Telmex, Petrobras and CVRD.

The blue-chip sector does not deliver above-market returns, so Bulltick and Axis have focused on trying to identify good investment  opportunities  among middlemarket companies in booming industries such as oil and gas and transportation infrastructure. The oil industry in Latin America is experiencing unprecedented growth, not only as a result of soaring prices but because of the amount of infrastructure being built in the region.

The contractors in these industries often lack access to regular bank financing or the capital markets, but they are highly cash generative. All they need is to be able to source their funding needs, but local banks are not able to capture this type of opportunity because they only look at the classic credit parameters of the company seeking funding.

Unlike in the US, there is no deep pool of capital among banks, insurance companies and pension funds to fund such projects. Latin American pension funds are, for the most part, prevented by their mandates from investing in unrated, illiquid securities. Yet these securities, if properly structured, enhance the credit risk of the underlying borrower by isolating their performance risk, segregating the asset that serves as the source of repayment and overcollateralising the loan obligation.

Bulltick and Axis have focused on developing highly structured transactions and acting as principal, typically underwriting between 10 and 20 per cent of the deal, with the rest being underwritten by institutional investors, primarily hedge funds.

These are funds active in emerging markets, special opportunities or credit driven strategies such as distressed, and that are willing to take a risk in more structured types of transaction than buying the classic Latin American blue chips. The returns may be high yield, but this does not necessarily mean high risk.

For example, Bulltick and Axis created Navitas Investments, an investment vehicle, and raised USD 100m in funding from five hedge funds for an oil and gas infrastructure project in Mexico. Navitas is yielding tremendous returns compared with the risk involved. The firm is now raising money for the first stage of a USD 150m public transportation project and an additional USD 100m for Navitas Investments II for a new oil infrastructure project.

In a nutshell, this approach provides funding for infrastructure projects through fully-secured transactions, with short- to medium-term duration, in which investors are taking far less risk than they would in buying a corporate bond that carries the borrower's full credit risk.

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