Viewpoint
From Ecuador’s renewable energy projects to Chile’s deeper green commitment to new investments in Argentina’s fintech start-ups, recent developments underscore trends in Latin America
Ecuador is working to launch its first auction for large-scale renewable energy projects.
The Andean country is one of only a handful in South America yet to hold a round of bidding for a renewables project. In the planned auction, set for later this year, the government will auction 500 MW of wind, solar and hydro projects in three separate rounds.
“They are finally getting started,†says Carlos St. James, a board member of the Latin American & Caribbean Council on Renewable Energy, a Washington DC-based group.
St. James says Ecuador is taking a different approach with its auction compared to other countries, where private companies often propose their own projects.
“It’s set up as a concession of Ecuadorean assets,†says St. James. Ecuador has developed preliminary studies and plans to award specific construction projects.
However, St. James says Ecuador may struggle to attract substantial investor interest in part because of its small market and the country’s troubled history with investors. Ecuador President Lenin Moreno, who took office in 2017, has sought to boost foreign investment and investor confidence, after he succeeded populist President Rafael Correa.
St. James says Ecuador is offering longer power purchase agreements, of 25 years, compared to many other countries. He also expects pricing to be “juicier†compared to other markets.
“That’s because of the risk,†he says.
After successfully issuing the first sovereign green bond in the Americas, Chile is planning to deepen its commitment to green investments.
Andres Perez, head of international finance at Chile’s finance ministry, says officials at the country’s two sovereign wealth funds are looking at ways to incorporate environmental, social and governance (ESG) criteria into their investment plans. Chile’s Economic Stability Fund has assets of around $14 billion, while the Pensions Reserves Fund holds $10 billion. Once their review is complete, any final decisions will be made public.
“Eventually incorporating ESG criteria is consistent with the administration’s broad effortsâ€
— Andres Perez, Ministry of Finance, Chile
“We are working on a green growth finance strategy,†Perez says. Chile’s government “places climate action within the highest level of its priorities. Eventually incorporating ESG criteria is consistent with the administration’s broad efforts.â€
The decision to possibly shift more of Chile’s investments into environmentally friendly projects comes as some other state-owned funds are taking similar steps. Norway, the world’s largest sovereign wealth fund, recently decided to limit its investments in coal and energy companies.
This is the latest in a number of green initiatives. In June, Chile issued a dollar-denominated green bond, raising $1.4 billion to finance sustainability and climate programs. Demand reached record levels, nearly 13 times the amount offered.
When IDB Invest helped structure Latin America’s first gender bond, it quickly turned around and bought 100% of the paper.
The five-year, $50 million bond issued by Panama-based bank Banistmo represented an important milestone for the region, helping to establish a new investment product, says IDB Invest Chief Investment Officer Gema Sacristán.
“We’re helping to act as the first mover in this space,†she says.
Banistmo will use the money to finance loans to small and medium-sized enterprises (SMEs) led by women. At least half of the funds will go to commerce and services. About 80% of the loans will range up to $250,000 each, and the rest will be capped at $500,000 each. The bonds were accredited with social bond standards by the environmental, social and governance (ESG) ratings agency Vigeo.
In recent months, IDB Invest has been involved in other transactions helping to issue the first sustainable bond in Argentina, the first social bond in Peru and the first green bond focused on housing in Latin America.
“If you look at the transactions we are doing, we’re basically creating the markets with these first issuances,†says Sacristán. “We hope it will have an effect on the market.â€
FINTECH
Add Canadian billionaire David Thomson to a growing list of big name investors backing fintechs in Argentina.
Thomson bought a 15% stake in new digital bank Brubank, which was founded by former Citibank Argentina CEO Juan Bruchou. Terms of the deal weren’t announced. In less than a year since it started operating with little advertising, Brubank has added more than 40,000 clients.
The announcement of the investment by Thomson, chairman of the financial information company Thomson Reuters, came weeks before Argentina’s economic crisis deepened in the wake of a primary election that showed President Mauricio Macri likely on course to lose his re-election bid in the country’s October presidential election.
The result sent the Argentine peso tumbling and led many economists to forecast the country will continue in recession in 2020.
Will the gloomy economic outlook slow investments in fintech? Valeria Azconegui, a Buenos Aires-based banking analyst at Moody’s, doesn’t think so. “The investments we’ve seen are really focused on the medium- and long-term.â€
While Argentina’s fintech sector is smaller than Brazil’s, several companies have attracted some high-profile investors.
Earlier this year, China’s Tencent Holdings took a stake in Argentine mobile banking start-up Ualá, whose investors include George Soros, Goldman Sachs and the family office of hedge fund manager Steven Cohen.
Tencent has also invested in Latin America’s largest fintech, Nubank.
Ualá launched its mobile banking app in 2017. The company was founded by Pierpaolo Barbieri, who says its products offer a low-cost banking alternative to tech-savvy Argentines. The company has issued more than a million free prepaid MasterCard cards. The card is linked to a mobile app where users can access a range of financial transaction services.
Argentine billionaire Eduardo Eurnerkian, who heads Corporación América, which holds concessions to operate more than 50 airports around the world, has backed another digital bank, Wilobank. Among its products is a rechargeable credit card.
Azconegui notes that Argentina’s bigger banks aren’t standing idle as the competition heats up. Santander is expected to launch its online bank, Openbank, next year, while Banco Galicia has been rolling out its digital product, Tarjeta Naranja.
Meanwhile, Nubank has announced it plans to continue its growth in Latin America, with plans to enter the Argentine market next year.
