Alarmed by the prospect of a leftist former guerrilla winning the presidency, investors have been pulling money from Colombia this year — but one of the country’s wealthiest men is making a multibillion-dollar bet the other way.
Banker Jaime Gilinski last month launched a $920mn bid for up to 32.5 per cent of Grupo Argos, a cement-to-infrastructure conglomerate that is one of the South American nation’s biggest companies. This comes hot on the heels of $2.8bn of bids and purchases he has made for two other Colombian targets, financial giant Sura and food company Nutresa.
As partners for the Nutresa and Argos offers, Gilinski — who made his fortune with a series of banking acquisitions across Latin America and is a large shareholder in the UK’s Metro Bank — has enlisted Abu Dhabi’s royal family.
If successful, his audacious $3.7bn worth of bids would reshape the corporate landscape of Latin America’s fourth-biggest economy and rebuff doubts about Colombia’s post-election economic future. A run-off vote on Sunday pits former rebel Gustavo Petro against Rodolfo Hernández, a populist businessman known as “Colombia’s Trump”.
Capital outflows from Colombia doubled in the first quarter of this year, according to the central bank, as wealthy locals moved assets abroad on fears over the possible election outcome.
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“I am investing in Colombia because I have confidence in the country,” Gilinski, whose net worth is estimated by Forbes at $4.2bn, told the Financial Times in a rare interview over breakfast at a London hotel. “Even though we are living in uncertain times, business people have to know how to sail in all circumstances.”
Gilinski’s bids offer potentially rich rewards. His three targets, which together make up the core of the Grupo Empresarial Antioqueño —a network of companies based in the country’s business capital Medellín — are linked by a web of cross-shareholdings set up in the 1970s to protect them against hostile bidders.
If the 64-year-old manages to buy 32.5 per cent of Argos, he says he will control directly or indirectly 51 per cent of all three GEA conglomerates because he can turn the cross-shareholdings to his advantage. This would allow him to oversee $20bn of assets, a figure equivalent to 7 to 8 per cent of Colombia’s entire GDP.
Medellín’s corporate elite is not surrendering its crown jewels easily. GEA has mounted a strong campaign to fend off Gilinski’s attacks, painting the banker as a corporate raider intent on stripping assets, underpaying for his targets and jeopardising the businesses’ links with local communities.
“If these companies are so bad, so poorly run and so uncompetitive, why is Gilinski paying such a huge amount of money to get them?” asked newspaper El Colombiano in an editorial.
Gilinski rejects the criticism, saying his interest lies in improving the operating performance of the GEA companies to deliver good returns.
“The management was not paying attention to shareholders,” he said. “The cross-shareholdings were great for the managers to keep control but what were the shareholders getting? That’s why the shares of Sura had come down 75 per cent in US dollars in the last 10 years”.
Gilinski says the three conglomerates have some strong brands, good operating profits and big market shares. But he argues the 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 “is right” in his criticisms of GEA’s management. “If you look at performance over the past 10 years at Sura and Argos, total shareholder return has been negative”.
Should he triumph, Gilinski said: “I will give each of the three companies a very clear focus on their core businesses and as a result their value will grow exponentially.”
Gilinski’s father owned snack food and consumer goods companies, so his family was able to fund his studies in the US, first at the Georgia Institute of Technology and then at Harvard Business School. After a year at Morgan Stanley as an M&A banker, he returned to the family businesses.
Then he spotted an opportunity while on holiday in London, as the 1991 demise of the Bank of Credit and Commerce International made headlines.
“I read in the FT that the BCCI bank had collapsed,” he said. “My dream was to be a banker so I got in contact with Touche Ross, the liquidators, and asked if I could buy the Colombian business.”
Gilinski said BCCI’s Colombian operation was losing $1.5mn a month when he purchased it. “We made it more efficient and deployed technology . . . within three years the return on equity was 25 per cent.”
When the Colombian government privatised Banco de Colombia three years later Gilinski swooped again, startling Bogotá’s business establishment with a winning bid of about $360mn for 75 per cent of the country’s largest bank, helped by funding from Morgan Grenfell and George Soros.
Gilinski slashed the lender’s workforce by two-thirds, sold non-core assets and boosted efficiency before selling three years later to the GEA, a transaction that led to a bitter 11-year legal battle between the parties over the deal’s financing, which was only settled in 2010.
In subsequent years, Gilinski scooped 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 as briefly holding a stake in Spain’s Banco Sabadell.
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Irish banker Conor McEnroy, who bought Sudameris’s Paraguay operation around the same time as Gilinski bought the Colombian arm, admires his peer’s methods.
“When Jaime is . . . interested in a business, he circles it and circles it until he’s ready,” he said. “He always structures his deals alone and then enlists the best available help to execute.”
Gilinski diversified into property in 2007, partnering with the UK’s Livingstone brothers and their London & Regional Properties firm to transform a former US base in Panama into a 1,400-hectare mixed-use development housing 300 companies and a planned 30,000 homes. He also holds a 9.1 per cent stake in Metro Bank.
But the Colombian bids represent his boldest move yet. After six separate tender offers, he holds 38 per cent of Sura and three board seats out of seven, plus 31 per cent of Nutresa and two board seats — still well short of a majority. This week he asked Sura to hold an extraordinary meeting to vote on selling its 36 per cent stake in Argos.
Jorge Restrepo, a professor of economics at Bogotá’s Javieriana university, criticised the way the battle has been conducted, with Colombia’s securities regulator allowing Gilinski to launch successive offers at different prices for different amounts of stock in Nutresa and Sura.
“This is a hostile takeover, which has never had a clearly defined final objective,” he said. “It is also very high risk because it is highly leveraged and speculative”.
Guardiola said it would be “not easy at all” for Gilinski to win control. “The holding companies own 45-49 per cent of each other and then there are local families, which have had substantial shareholdings for decades.”
Time may not be on the billionaire’s side. Guardiola added: “The longer it takes, the worse for him. His current position is destroying value because he has invested $2.5bn and is getting a 2 per cent return on it in Colombian pesos at a time when Colombian sovereign debt is paying 11 per cent in pesos. I don’t think his financing cost is 2 per cent in Colombian pesos.”
Gilinski countered that this is the wrong way to look at the situation and that he has already made $1.3bn of profit on the shares he has acquired and remains determined to pursue his targets. He said 65 per cent of the funding required for the bids comes from First Abu Dhabi Bank, with the remainder from the Gilinskis and the Abu Dhabi royal family.
“The value of the three companies when we started in November was less than $7bn,” he said. “Now it’s $14.5-15bn and the value in 2012 was $30bn. That gives an idea of the value creation.
“I’m positive we will win. It’s a question of patience, time and perseverance and that’s what I’ve been doing all my life.”
