Latin America Survey

8/4/2019 Latin America Survey

http://slidepdf.com/reader/full/latin-america-survey 1/20

September 2011

North Am erican and European Inves to rO pin ions o f Latin American Com pan ies

Depo sita ry Re ce ip ts G ro up

WO RLDW IDE SE CU RIT IES S ERV IC ES J.P.Morgan



J.P.Morgan

T ab le o f C on te nts

In tro duc tion 2

S u rve y M ethodo logy 3

E xecu tive S umma ry 4

Key F ind ings 5

D ep os ita ry R ec eip ts G ro up



J.P.Morgan

In t roduct ion

A robust and susta ined investo r re la tions p rogram is one of the p rimary means to achieve the stra tegic

ob jec tives of a depositary rece ip t p rogram . In addition to the bes t-p ractice gu idance and strong suppo rt that

ou r globa l IR Adviso ry S ervices team de live rs to c lients each day, we endeavo r to he lp them stay abreast o f

im po rta nt de ve lop ments in the w orld 's ca pita l m arke ts.

T o this end, J.P . M organ's D eposita ry R eceip ts G roup is p leased to present he re in the findings o f an extens ive

su rvey that we comm iss ioned to he lp c lients unde rs tand the dispos ition o f N orth American and E uropean

investo rs tow ard La tin A merican com panies . T he su rvey , conduc ted by the globa l marke t in te lligence firm

Ipreo , gathe red the op in ions o f 40 institu tiona l inves tors that ho ld , in the aggrega te , approxim ate ly $57.3

b illion o f equ ity in La tin A merican com panies, o r 13.4% of a ll equ ities in the region held by ac tive inves tm ent

managers.

U nders tanding prevailing inves to r sentim ent is crucia l to fo rm ulating o r reca lib ra ting an e ffective investo r

re la tions s tra tegy and p lan. B y targe ting the right inves to rs and effective ly com munica ting its inves tm ent

p roposition ove r tim e, a com pany he lps ma inta in an op tima l m arke t va lua tion and ready access to cap ita l,

which a re among the principa l a im s o f a depositary rece ip t program . Accord ingly, we hope the find ings o f

ou r survey w ill he lp you r com pany enhance the investo r re la tions e ffo rts tha t unde rp in its financia l s tra tegy.

P lease do not hes ita te to contact me or you r J .P . Morgan re la tionship manager if you have any ques tionsabou t the investo r op in ions revea led by ou r survey.

W a rm r eg ar ds ,

J os ep h D oo le y

Am eric as R eg io na l H ea d


D ep os ita ry R ec eip ts G ro up 2



J.P.Morgan

S u rv ey M e th o do lo gy

In June and Ju ly o f 2011 , Ip reo condu cte d, on beha lf o f J .P . M orga n's D ep os ita ry R ece ip ts G roup , a te lephone -

based survey o f ins titu tiona l inves to rs in the U nited S ta tes, C anada, and E urope (U nited K ingdom , France ,

S weden, S witzerland and the Ne therlands ) to ga in ins igh t in to how La tin Am erican com panies can im prove

the ir overa ll investo r re la tions and co rpora te gove rnance practices and to gene ra lly unders tand investo rs '

se ntim ent to wa rd L atin A me rica n e qu itie s.

In to ta l, Ip reo rece ived feedback from 40 firm s tha t inves t in La tin Am erica . A s o f June 30, 2011 , these survey

partic ip ants m anage d a com bine d $1.2 trillion in equ ity asse ts , $57.3 b illio n o f w hich repre sente d ho ld ings in

La tin Am erican com pan ies, o r approx im ate ly 13.4% of a ll La tin Am erican equ ities he ld by active investm ent

m anagers ou ts ide La tin America . O f the 40 firm s , 65% are traditiona l investm ent advise rs /m u tua l fund

m ana gers , and 35% a re hedge fu nds.

S urvey pa rtic ipants were grouped into three ca tegories : T ie r 1 inves to rs m anaged more than $35 billion in

equ ity asse ts ; T ie r 2 investo rs m anaged between $5 billion and $35 billion in equ ity asse ts ; and T ie r 3

inves to rs m anaged less than $5 b illion in equ ity asse ts . O f the 40 partic ipa ting firm s, 9 a re c la ss ified as T ie r 1

inves to rs , 14 are T ie r 2 inve sto rs , a nd 17 a re T ie r 3 investo rs .

Pa rtic ip ant B re akdow n: Inve sto r T ie r P artic ip ant B re akd ow n: In ve sto r T yp e

.Tier 1

• H edge Fund

• M utua l Fund.Tier 2

.Tier 3

The questionna ire be low was used to conduc t the investo r in te rview s. It w as crea ted in con junction w ith

Ip reo . The questions posed w ere m os tly open-ended to a llow investo rs to free ly d iscuss key issues they face

w he n inve sting in L atin A me ric an co mp anie s.

• In which L a tin American countries a re investo r re la tions s tanda rds the highest and in wh ich are these

s ta nd ard s th e lo we st?

• In what w ays cou ld investo r re la tions imp rove in La tin Ame rica?

• How often each year do you need to m eet w ith the senio r m anagement o f La tin American compan ies in

w hich yo u ha ve inve ste d?

• In wh ich L a tin American countrie s are corpora te governance standards the highest and in which a re

the se s ta nda rd s th e lo we st?

• In what w ays cou ld corpora te gove rnance be im proved in La tin Am erica?

• In what ways do you use the se ll s ide?• Does a U .S . lis ting increase the investm ent appea l o f a La tin Am erican com pany?

• Does a NYSE or NASDAQ lis ting m ake a Latin American company more appea ling than if it we re traded

o ve r - th e- co u n te r?

• How cou ld La tin Am erican com panies be tte r com pete fo r em erging m arke t investo rs?

• W hich La tin American countries look the most p rom is ing ove r the next one to three years and wh ich

o nes w ou ld yo u avo id?




J.P.Morgan

E xe cu tiv e S umma ry

The study revea led tha t ins titu tional inves tors in North Am erica and E urope a re gene ra lly optim istic that

investm ent oppo rtun ities exis t in La tin A merica ove r the next three yea rs.

The primary reason fo r th is op tim ism is the reg ion 's expec ted econom ic grow th due to compe lling

demographic trends, such as grow ing m iddle -c lass popu lations , tha t should boost dem and fo r goods and

se rv ices. Investo rs a re a lso encouraged by improving co rpora te governance s tandards, continued

deve lopment o f cap ita l marke ts and infras tructu re, low leve ls o f consumer deb t, and the p reva lence o f

n atu ra l re so urc es a cro ss L atin Am eric a.

Investo rs be lieve that investo r re la tions and co rpora te gove rnance standa rds have im proved, bu t stress how

vita l it is fo r com panies to fu rthe r bo lste r the ir e ffo rts in these areas as they continue to compe te fo r g loba l

capital .

O the r k ey findings and inves to r re co mm enda tio ns inc lude :

• Investo rs ove rwhe lm ingly view Brazil as the country o ffering the highes t leve l o f inves to r re la tions

s tandards in La tin A merica , w hile C olom bia, M exico , and P eru have the m ost room fo r im provem ent.

• Respondents s ta te that L a tin American companies can improve the ir inves to r re la tions effo rts by

e nha ncing dis clo su re , im pro ving the q uality of the ir inve sto r p res enta tions, pro vid ing inve sto r m ate ria l

in E nglish, increasing access to senio r m anagem ent, and proactive ly com municating w ith investo rs and

se ll -s id e ana ly s ts .

• Investo rs s tress the va lue o f face -to-face m eetings w ith senio r m anagement teams o f La tin Am erican

com panies , w ith 80% of inves to rs p refe rring tw o o r m ore m ee tings annually w ith the executive team .

• O ve r 50% of pa rtic ipants be lieve that B razil has the best corpo rate governance standa rds in La tin

A merica, p rim arily due to the creation o f the N ovo M ercado o f B M& FB OV ES PA .

• In orde r to im prove co rpora te gove rnance , inves tors recom mend tha t L atin A merican com panies p rotect

the in teres ts o f m ino rity sha reho lde rs by imp lementing a s ing le -c lass share s truc tu re , inc reas ing

financ ia l transpa rency, and cla rify ing business issues such as execu tive compensation, Board

ind ep en de nc e, p ro xy p ro po sa ls , a nd ins ide r s ale s.

• For La tin Am erican investments, su rvey pa rtic ipants p rincipa lly u tilize the sell s ide fo r management

a cc es s a nd c om p an y-s pe cific r es ea rc h.

• 60% of the partic ipants believe tha t a U .S . lis ting increases the inves tm ent appea l o f a La tin American

c om pany , m ainly c iting the incre ase d liqu idity that it o ffe rs .

• 75% of inves to rs p re fe r NYSE - o r NASDAQ -lis ted equ ities to O TC -traded equities because o f grea te r

liqu id ity and s tric te r repo rting and disclosu re requ irements w ith which exchange-lis ted, sponso red

c om pa nie s m us t c om ply .

• Investo rs view Braz il and C olom bia as the m ost p rom is ing markets in La tin Am erica ove r the next three

yea rs , bu t a re tentative abou t inves ting in A rgentina , P eru , and V enezue la, due to po litica l unce rta in ty in

t he s e c o un tr ie s .




J.P.Morgan

Key Find ings!

In ve sto r re la tio ns s ta nd ard s in L atin Am eric a

The No rth Ame rican and E uropean inve s tm ent comm un ities v iew B raz il as hav ing the highes t inves to r

re la tio ns s tanda rds in L atin A merica . Inve sto rs be lieve tha t the e sta blishm ent o f the N ovo M ercado has le ad

to m ore s tr ingent co rpo ra te gove rnance s tanda rds and inc re as ed inves to r c om mu nica tions . m ana gem en t

a cce ss ib ility . and d isc lo su re . S urvey p art ic ipa nts no te tha t B ra zil ha s a deve lo ped bu sine ss landsca pe tha t is

g row ing and ac tive ly seek ing new inve s tm en ts . w hich requ ire s an open and fo rthcom ing in fo rma tion

e nvironm ent. Inves to rs fee l tha t m ore re sou rce s a re a lloca ted to B raz ilian inves to r re la tio ns ac tiv ities and

tha t th is c ou ntry 's IR Os ope ra te in a m ore p ro fes siona l m anne r. Inves to rs a lso ap pre cia te tha t m any B raz ilia n

co mpan ies m ainta in w eb sites tha t a re ea sy to na viga te a nd o ffe r a ll in fo rm ation in E nglish .

C hile and M exico were c ited by a sma lle r pe rcentage o f su rvey pa rtic ip an ts a s m ainta in ing the highes t IR

s tanda rds in L atin A merica . Inve s to rs fee l tha t C hile an com pan ies have w ell- in fo rm ed and expe rie nced IR

pro fe ss io na ls w ho a re ab le to speak on beha lf o f m anagem en t. Inves to rs a lso laud C hile an compan ies fo r

the ir regu la r com mun ica tio n w ith the inve s tm ent com mun ity and the ir w illingness to d is c lose su ffic ien t

in fo rm a tio n to in ve sto rs .

Inves to rs no te tha t M exico has m any la rge . re pu tab le com panie s w ith robus t IR p rogram s tha t regu la rly

co mm unica te w ith the m arke t a nd frequ en tly m ee t w ith inve sto rs . S om e inve sto rs tho ugh vie w M exic o as one

o f the coun trie s o ffe ring the low es t s tanda rds because o f the dispa r ity in IR s tanda rds be tw een the b lue chip

com pan ies and sm alle r com pan ies . w hich o ften la ck tra nspa rency and o ffe r p oo r m anagem en t access and

i nf orma ti on d is c lo s u re .

C olom bia and Pe ru a re desc ribed as having low IR s tanda rds by 23% and 18% of the su rvey pa rt ic ipants .

re spec tive ly . Inves to rs fe e l tha t mos t compan ies in the se le ss -pene tra ted ma rke ts do no t have m uch

e xpe rie nce in te ra cting w ith inves to rs . do no t a lw ay s co ns is tently com mun ic ate w ith the fina nc ia l m arke t. do

no t p rov ide fu ll d isc losu re . and a re no t as p ro fic ie nt in the E ng lish language as com panie s from more

d eve lo pe d m ark ets in L atin A me ric a.

H ig he s t I R S ta nd ar ds * L ow e st I R S ta nd ar ds *

Chi le

Co lomb ia

Mex ico

Braz i l

Mex ico Pe ru

0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30%

*P artic ip ants ha d the o ptio n o f p ro vid ing m ultip le re sp ons es. O nly re sp onse s re ce iving thre e o r m ore m entio ns a re d isp la ye d

S e le ct in ve sto r c omm en ta ry

"Inves to r re la tio ns s tanda rds a re the h ighes t in B raz il a nd C hile . B ra z il and C hile a re ve ry good a t g iv ing

d isc losu re . T hey g ive away a lo t m ore in fo rm atio n on a regu la r ba s is . T hey g ive qua rte r ly in fo rma tion in

E ng lish on the ir w ebs ite s . O n the o the r hand. C olom bia and P eru have low er inves to r re la tio ns s tanda rds

1 A ll p erc enta ge s ha ve b ee n ro unde d to the ne are st w ho le p erce nta ge p oin t.




J.P.Morgan

because they do not g ive as m uch de ta il. T hey have the lowest IR standa rds in the reg ion. O ftentim es , they

d on 't d is clo se th e fu ll fin an cia ls ."

"B raz il has the best inves tor re la tions standa rds in the reg ion. I find them to be ve ry entrep reneu ria l and

they no rmally have a very good handle on the E nglish language. T hey a re the most com fortab le

com munica ting w ith investo rs . C olom bia p robably has the low est investo r re la tions s tandards because they

don't rea lly com e to marke t tha t o ften. The market the re is a b it sm alle r, and they don 't trade ve ry m uch."

"Inves to r re la tions s tandards are highes t in B raz il because the re a re more com panies in that reg ion, which

fos te rs greate r in terac tion and the re fore h ighe r investo r re la tions standa rds. In M exico and A rgentina, the

m ain nega tive poin t in IR standa rds is the level o f d isclosu re from com panies in these countries, w hich is very

lo w. In A rgentina , po or vis ib ility a nd lim ite d a cce ss to IR te am s hu rts the ir p res enta tion to p otentia l inve sto rs .

It is not tha t easy to ta lk to them ."

"B raz il has the highest investo r re la tions standa rds in Latin America . T h is is because it has a nice

combina tion o f IR s tandards , inc lud ing good corpo rate governance and the ability to speak E nglish. I th ink

C hile is p re tty good, bu t the issue fo r them is the language ba rrie r. E nglish is just no t as pe rvasive. C olom bia

and Peru are the only o the r countries I have in m ind, and these two do just fine ."

"Inves to r re la tions s tandards are a ll very good in C hile , B raz il, and to a ce rta in extent, in M exico . C hile and

B razil specifica lly have high IR standa rds because o f the ir w illingness to sha re in fo rm ation and to m ee t w ith

investo rs. C olomb ia 's investo r re la tions a re particu larly weak because its com panies do no t inte ract w ithinvesto rs as much as they shou ld. Pe ru a lso has low investo r re la tions s tandards , and since it only has about

three qua lity com panies to invest in , it's hard ly a p resence in the m arket."

"I think that B raz il has the best inves tor re la tions . T he p roblem is tha t the re is a lo t o f va riab ility , so it rea lly

comes down to indiv idual companies. I be lieve tha t because o f the Novo Mercado there a re h igh leve ls o f

co rpo ra te governance in B raz il that re flect on the behavio r o f those com panies. It is d ifficu lt to gene ra lize by

country because the re is a rea l m ix by marke t. The re a re some best p ractices and then some lagga rds.

Markets that w e do no t know much abou t are Peru and C olomb ia because liqu id ity is low and

comm unica tions a re in frequent. W e see world-c lass com panies in Mexico and B razil. T hose a re the be tte r

markets."

"C hile and B raz il have the highes t investo r re la tions s tandards. T he level o f in form ation and qua lity of tha t

info rm ation has im proved grea tly in those countries ove r the pas t few yea rs. T hey have a lso com municated

on environm enta l issues , w hich is positive. In C hile , I like the regula rity o f com munication ove r tim e. It is less

in othe r countries. T he re is not a specific country w here I fee l tha t investo r re la tions standa rds are rea lly low .

In the pas t, even in countries like B razil and C hile , investo r re la tions were o ften overly optim is tic . I like tha t

the y have be com e m ore re alis tic w ith the ir c om mu nic atio ns."

"B raz il, A rgentina , and C hile a re the La tin American countries w ith the highes t IR standa rds. Mexico and

C olomb ia a re La tin American countries w ith the lowes t s tandards because they have lim ited vis ib ility and

they p rovide poo r access to inves to rs. In C olom bia specifica lly , the cross -hold ing structu res , such as the

syndica tes , a re an issue because you do no t fee l pa rticu la rly va lued as a fore ign investo r in com parison to

B razil, w he re you ge t m ore o f an open recep tion."

Investo rs' su ggestio ns o n h ow Latin A m erican co mp anies can im prove investo r

relations

Investo rs a re adam ant tha t as L atin A merican com panies p laya la rge r ro le in the globa l econom y, enhancing

investo r re la tions w ill be a cruc ia l com ponent in ga rnering highe r levels o f in terna tional investm ent. W hile

m any investo rs fee l tha t L atin A merican com panies have exhib ited s ign ificant progress w ith the ir IR e ffo rts

over the las t decade , they po in t out tha t som e areas still need im provem ent.

A cco rd ing to 50% of su rvey 's pa rtic ipants, the m ost im portant aspect o f inves to r re la tions that m us t im prove

is the leve l o f info rmation disclosu re. O ne key area where companies cou ld make the b igges t impact is




J.P.Morgan

enhancing inves to r presentations . W hen considering which companies in which to inves t. ins titu tional

investo rs a re look ing fo r s tra teg ic diffe rentia to rs, key revenue drive rs, potentia l risks and cha llenges , and

c ons erv ativ e b ut re alis tic p erfo rm anc e g uida nc e.

A qua rte r o f su rvey pa rtic ipants be lieve that La tin American companies wou ld bene fit from provid ing a ll

financ ia ls a nd bu sine ss in fo rm atio n in E nglis h a s w ell as em plo ying a n E nglish-s pe aking IR O . A dditio nally , for

c om panie s that ho st se para te ea rn ings c onfe rence ca lls in E nglis h a nd S pa nis h, inves tors enc ou ra ge po sting

E nglish transc rip ts of b oth c alls be po sted o n the co mp any's w eb site .

Ano the r 25% of su rvey partic ipants s ta te that it is im portant fo r L a tin American IR teams to im prove access

to senio r m anagem ent because the ir ava ilab ility is genera lly insu ffic ient. S eve ra l partic ipants fee l tha t som e

L atin A merican m anagem ent team s conscious ly choose no t to spend tim e inte racting w ith investo rs. S urvey

partic ipants fee l tha t it is v ita l fo r members o f the execu tive team to trave l outs ide the ir home country and

ac tive ly pa rtic ipa te in one-on-one m eetings and equity confe rences in o rder fo r the inves tm ent com munity to

ge t com fo rtable w ith and ga in confidence in the company 's leadersh ip . Inves to rs a lso be lieve tha t it is

im portant for L atin A merican com panies to a lloca te su ffic ient resou rces tow ard inves tor re la tions effo rts in

o rder to p romote p roactive communica tions w ith the investment community. Investo rs expect, from

companies in w hich they have inves ted, regula r and tim ely com munica tion and a ttendance a t m ajo r equ ity

conferences.

L as tly , inves to rs stress the im portance o f m ainta in ing a com prehensive and frequently-updated com pany

webs ite that archives and provides access to a ll im portant documents , such as p ress re leases , investo r

p re se nta tio ns , fin anc ia l s ta te me nts , a nn ua l re po rts , a nd e arn in gs c all tra ns crip ts .

su gg estio ns fo r Im pro vin g IR *

Im pro ve D is clo su re a nd E nh an ce

Presentat ions

P ro vid e M a te ria ls in E n glis h

In cr ea se A cc es s to M a na ge m en t

C ommu ni ca te P r oa c ti ve ly

Im pro ve C om pa ny W e bs ite

0% 10% 20% 30% 40% 50%

S e le ct in ve sto r c ommen ta ry

"It seems as though Latin American

companies w ith poo r inves to r re la tions

s tanda rds simp ly don 't ca re . However,

improving investo r re la tions cou ld be as

s imp le as having a p rope r and dedicated IR

depa rtment. T hey should a lloca te more

resou rces toward crea ting be tte r investo r

re la tions programs and toward crea tingbette r w ebsites w ith com pany in form ation.

T he y es pec ia lly ne ed to p ro vide w ebs ite s tha t

a re in E nglish, because many times they only

have webs ites in S panish. T he firs t s tep ,

th ou gh , is gre ate r d is clo su re o f in fo rm atio n."

"O ne o f the investo r re la tions issues in B razil

is tha t financia ls a re filed in a very , very

opaque way. T he documents are no t rea lly

readable . C om panies in B raz il have to file financ ia ls, bu t the financia ls tha t they file a re jus t indeciphe rab le to

me . T his isn 't because o f the language ; even when they a re transla ted the documents just don 't mean

anyth ing to me. U .S . inves tors a re used to seeing tons o f info rma tion, pro fo rma numbers , and things tha t

a llow them to compare one company to anothe r, which is ve ry he lp fu l. B razilian companies shou ld try top res ent in fo rm atio n in the s am e m anner."

*Pa rtic ipants had the op tion o f p rov id ing mu ltip le responses. O nly

re sp on se s re ce ivin g five o r m ore m en tio ns a re d is pla ye d.

"L atin A merican com panies cou ld im prove investo r re la tions by disclosing m ore opera tiona l num bers, ra the r

than just revenues and ea rn ings. T hey shou ld d isclose vo lum es, the sales p rices o f p roduc ts so ld , and the key

re ve nu e d riv ers o f th e b us in es s."

"T he re are some companies tha t have high s tanda rds and perfo rm pretty we ll. o the r companies a re much

too qu ie t. I th ink tha t the o rganization o f an inves to r re la tions departm ent tha t com munica tes regula rly w ith

the inves tment community is necessa ry. T hey need to rep resent the qua lity o f the company . I just need

investo r re la tions to be re liable . I want to see them being ac tive and comm unica ting through confe rences . A




J.P.Morgan

good standa rd is that the company shou ld g ive systema tic gu idance that is conserva tive bu t rea lis tic and

d is cu ss a ll p ote ntia l is su es ."

"T he m arkets in L atin A merica w ou ld bene fit from com panies having to m ake regu lar presenta tions, e ithe r a t

the stock exchange or a t some public venue . It w ou ld be idea l to have these p resenta tions m ade a t leas t once

o r tw ice a year, specifica lly w here senio r m anagem ent, no t IR , is ava ilab le . T here is a lready a lo t o f IR activity

in La tin America , bu t sen ior management is m uch less active w ith inves to rs. V is ib ility and access to senio r

management needs to remain a pa rt o f the cultu re. Many o f these guys are ve ry rich and can 't be bo thered,

but it's good to see them once in a while . And tha t goes fo r the management in every country."

"O ne way tha t La tin American inves tor re la tions cou ld improve is that som e o f the sm all-cap companies tha t

p robably w ent pub lic in the last two o r three yea rs don 't a lways have the filings ava ilab le in E nglish. T hat is a

key a rea . It is rea lly d ifficu lt to analyze a company and dig deepe r in to the filings unless you a re a fluent

Po rtuguese speake r. E nglish is the language of bus iness . I am no t demanding tha t they speak in the ir non-

native tongue , but it wou ld be use fu l to o ffe r the filings and ca lls in E nglish. T hey shou ld have the call in

E nglish and the re w on't be any ques tions. P rovid ing a trans la tion o f the transcrip ts could be a good solu tion

too."

"L a tin American companies cou ld do a be tter job of provid ing more comp lete p resenta tions. T he

p resenta tions tha t these companies give a re a lways very short and su rface -leve l. T hey don 't g ive you m uch

d ata in th e p re se nta tio ns ."

"T he re a re severa l ways to improve inves tor re la tions in La tin America. T he firs t is to inc rease access to

companies ' sen io r management. S econd wou ld be more tho rough press re leases , and third is to have

c onfe re nc e c alls a va ila ble in d iffe re nt la ngu age s, in clu din g E ng lis h, S pa nis h, a nd P ortu gu es e."

In ve sto rs ' p re fe rred fre qu en cy o f m ee tin gs w ith s en io r m an agem en t

A ll su rvey pa rtic ipants p lace a high importance on face-to -face meetings w ith members o f the execu tive

management team . 42% of pa rtic ipants p refe r to meet w ith management two to three times a yea r; 38% on

a quarte rly o r m ore frequent bas is ; and 20% state they only need to m eet once a yea r.

Investo rs emphas ize the importance o f meeting in-person w ith the decis ion makers o f the companies in

which they have a s take and cons ide r it a va luab le pa rt o f the ir inves tment p rocess . Investo rs a re w illing tomee t w ith IRO s of La tin American com panies as w ell, but as a m eans o f supp lementing m eetings w ith senio r

management, not in lieu o f them . W hile investo rs sta te a p re ference fo r m eeting w ith senio r management a t

the ir own offices , m any ind ica te tha t they are open to m eeting at neu tra l s ites , such as broke r confe rences ,

o r tha t they a re w illing to trave l to La tin Am erica for mee tings a t a company 's headquarte rs o r fo r s ite tours .

T hese forum s a llow inves to rs to in te rac t w ith va rious leve ls

o f management and assess the breadth and dep th o f the

m ana ge ment te am s b efo re c om mitting ca pita l.

F ac e-ta -F ac e M e etin gs w ith

Managemen t

• A nn ua lly

.2 - 3 T im es Pe r Y ea r

• Q ua rte rly o r M ore

O f no te, No rth American investo rs a re seek ing more

freq uent face -to -face inte raction than the i r g loba l

counte rpa rts, w ith 50% of U .S . and C anadian investo rs

p refe rring qua rte rly meetings and only 27% of o ther

investo rs demanding th is frequency of meetings . T ie r 3investo rs a re m ost ins is tent upon frequent mee tings w ith

management, w ith 47% vo ic ing the ir p refe rence for

qua rte rly meetings w ith management, as opposed to the

33% and 29% of T ie r 1 and T ier 2 inves tors who vo iced this

op in ion, respec tive ly . S im ila rly , hedge funds a re much

more insis tent on frequent mee tings than trad itiona l

investm ent m anagers , as 57% of hedge fund pa rtic ipants

want qua rte rly m eetings , com pared to 27% of trad itiona l




J.P.Morgan

in ve stm e nt m a na ge rs .


"Fo r La tin American companies in which I am invested , I w ou ld like to m eet w ith sen io r m anagement tw o or

th ree tim es a yea r. I don 't m ind where we mee t, so long as it is face to face ."

"If a company is active and attends confe rences, and we get to communica te w ith them regu la rly during the

year, w e pre fe r to m eet w ith them tw ice a year. W e like to m ee t w ith the C EO , CFO , and IR . W e try to m eet or

have a confe rence ca ll w ith the le ss active companies a t least once a year. It w ou ld be benefic ia l fo r

com pan ies to no t only trave l to New York, bu t to trave l to L ondon as well. In London there is a b ig base of

inves to rs , so it w ou ld be benefic ia l to trave l the re to try to a ttra c t new investm ents . A lm ost a ll o f the broke rs

tha t a re ac tive in La tin America a ttend a multi-day London confe rence . It a llow s them to see a number o f

compan ies . "

"My p re fe rence is to m eet w ith the La tin American compan ies tha t I inves t in two to th ree tim es a year. W e

don't want to be too demand ing , bu t we are fa irly concentra ted, so if we are go ing to invest in a company, we

want to m ee t fa ce to face w ith m anagement. It is a lw ays conven ient if the m ee ting can take p lace a t our

o ffice . W e w ill happ ily tra ve l to see compan ies as we ll, bu t it is a lw ays more convenien t to m eet w ith

co mp an ie s a t o ur o ffice ."

"It is p re fe rab le to have face-to -face m ee tings once a qua rte r w ith the senio r m anagem ent o f L atin Am erican

compan ies. I like trave ling to each county a t leas t once or tw ice a year. I w ill v is it the ir o ffice tw ice , they w ill

v is it m e once at m y o ffice , and I w ill a lso see them a t o ther b roker confe rences th roughou t the yea r."

C o rp ora te g ov ern an ce s ta nd ard s in L atin Am e ric a

Inves to r op in ions on corpora te governance standards in L atin Am erica co rre la te w ith op in ions on investo r

re la tions standards in the re gion, w ith B ra zil and C hile ranking a t the to p.'

B raz il dom ina ted the study due to its s ize and p rom inence as a viab le m a rke t, so it is no surprise tha t it was

brought up as o ffe ring bo th the highest and lowest corpo ra te gove rnance in La tin America . Inves to rs s ta te

tha t the re is a d icho tom y in the governance p racticed in B raz il be tween those companies tha t a re lis ted on

the Novo Mercado and those tha t a re no t. T he Novo Me rcado is w ide ly lauded fo r driving public com paniestowa rd stric te r disc lo sure s tanda rds, a s ing le -c lass sha re system , and tag-a long rights fo r m ino rity

shareho lders . Investo rs who perce ive B raz il as having low co rpora te governance prim arily c ite those

com pan ies tha t s till ope ra te w ith m ultip le sha re c lasses (a m ajo r investo r conce rn across La tin Am erica) and

a la ck o f p ro te ctio n fo r m in ority sha re ho lde rs .

N early 40% o f respondents p ra ise C hile fo r its h igh standards o f corpo ra te governance . These investo rs no te

tha t C h ilean companies a re m ore expe rienced w ith corpo ra te governance and make more o f an e ffo rt to

pro tect m inority shareho lders . Inves to rs apprec ia te C hilean com panies tha t report on a quarte rly bas is , do

not ha ve m ulti-c lass sha re syste ms, a nd fea tu re indep endent B oa rds.

Mexico is ano ther country where corpora te governance standards a re viewed in an amb iva lent m anne r.

W hile 13% of survey partic ipants be lie ve tha t M exican com panies m ake adequate e ffo rts to pro tect m inority

shareho lders , o the rs c ite comp lica ted and opaque share stru c tu res a long w ith a lack o f shareho lde r

communica tion as obstac les to investment. Investo rs perce ive a gap in co rpora te governance in Mexico

betw ee n the la rger, repu ta ble co mpan ie s and sm alle r, poo rly governed co mpan ies .

C olom bia and Argentina are c ited fo r the ir poor corpo ra te governance p ractices. Investo rs po in t to poor

d isc losure and c ross-sha re ho ldings in C olom bia , and to a la ck o f independent Boa rds, inadequa te lis ting

s ta nd ard s a nd p olitic al u nc erta in ty in A rg en tin a.

2 I t is im po rta nt to n ote tha t w hile inv es to rs n am ed s pe cific c ou ntr ie s a s h av in g 'h ig h' o r 'lo w' c orp ora te g ove rn an ce s ta nd ard s, th ere a re

a lw ay s o utlie rs in s urve ys a nd s ta nd ard s c an v ary w id ely fro m c om pa ny to c om pa ny w ith in th e s am e c ou ntry .




J.P.Morgan

Inves to rs ass ign a low ra ting fo r corpo ra te governance in Peru and V enezue la due to the ir re la tive ly

underdeve lop ed bu siness p ractice s. S urvey pa rtic ip an ts a lso p oint to loo se ly-re gu la ted stock exchanges in

P eru , a nd th e cha lle ng in g p olitica l la nd sca pe in V ene zu ela .

H ig he st C o rp ora te G o ve rn an ce S ta nd ard s

in L atin A me ric a*

L ow es t C o rp ora te G o ve rn an ce S ta nd ard s

in L atin A me ric a*

Chi le

Braz i lBraz i l

Co lomb ia

Mex ico

Mex icoArgent ina

0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30%

*P artic ip ants ha d the o ptio n o f p ro vid ing m ultip le re sp ons es. O nly re sp onse s re ce iving fo ur o r m ore m entio ns a re dis pla ye d.


"The N ovo M ercado in B raz il has led to corpora te gove rnance be ing the highest there . H ow ever, the Braz ilian

compan ies tha t a re no t invo lved in the Novo Mercado have poo r corpora te gove rnance. V enezue la and

A rgen tina o ffe r the w orst co rpora te governance becau se o f the po litica l tu rm oil there . C orpora te gove rnance

a ffec ts our inves tm ent de cis ion because w e w ant to se e a co mp any fu lfill a ll o f the regu la tio ns."

"C hile and Mexico have h igher corpo ra te gove rnance s tanda rds, whereas Braz il has lower co rpora te

governance standards . C h ile and Mexico do a bette r job o f p ro tecting m ino rity shareho lders than the

compan ies in B raz il do . C orpora te governance standards in B raz il a re low ; jus t look a t what happened w ith

C osan, w hich is pa rt o f the N ovo M ercado."

"C hile has the h ighes t corpora te governance standa rds because usua lly its com panies upho ld a one -share ,one-vo te practice , have tag-a long rights , m a in ta in c leaner corpo ra te struc tu res , and typ ica lly have high

Board independence. A rgentina and Braz il, on the o ther hand, have some o f the lowest co rpora te

governance standards in L a tin America . B raz il is m oving in the right d irec tion but is s till beh ind the cu rve .

The Novo Me rcado companies are be tte r, bu t if you go w ith the non-vo ting companies w ith dua l credit

c lasses and no tag-a long rights , then this can discourage inves to rs . If an investm ent w ou ld incur a grea t risk

o r if the re tu rn is no t high , then I w ou ld a lso not invest. In A rgen tina , lowe r co rpora te gove rnance standards

a re an issue . S om e of its banks and utilitie s com panies have decent corpora te governance. But overa ll, B raz il

ha s m ore c om pa nie s w ith gre ate r co rp ora te go ve rna nce sta nd ards."

"B raz il has the highest corpora te governance standards. They know tha t gove rnance m us t be good to a ttrac t

inte rna tiona l investm ents . C olum b ia 's co rpora te governance standards are low . T hey have a lo t o f c ross-

share ho ldings. That is a b ig p rob lem . It a ffe c ts the floa t o f the company . If there are a lo t o f cross-share

ho lde rs , the re is no t a lo t o f floa t fo r o ther peop le to invest in the com pany ."

"The N ovo M ercado in Braz il is grea t and the C hilean com panies in genera l have high standa rds fo r co rpora te

governance . M exico has the low est s tandards o f corpo ra te governance . T his is no t necessarily the case fo r

som e of the b lue ch ips in Mexico , bu t som e o f the o ther compan ies. E ven in the case o f the b lue chips

sometim es, the companies in Mexico are so b ig and they know it, so they do no t want to ta lk to m inority

shareho lders . T his can be a prob lem , espec ia lly because as a m inority , you don't have access to the same

kind of sha res as the fam ilies , which is a m ajor p rob lem . W hat B raz il has done w ith the Novo Me rcado and its

one-share system is a grea t m ove , and M exico shou ld do the sam e."




J.P.Morgan

"C hile and M exico have the bes t co rpo ra te gove rnance s tanda rds . In bo th countr ie s. the ru les on takeove rs

a re the m ost c lea rly es tab lished. T he p rac tice o f having m ultip le sha re c lasses has m ostly been done aw ay

w ith . T he re a re ru les on qua rte rly repo rting which fo rce com panies to d ivu lge resu lts w ith in the firs t 30 days

a fte r the qua rte r ends . It keeps the p rocess under contro l. In B raz il. the re a re som e com panies tha t have no t

repo rted a fte r three months . In B ra zil. it is a m ixed bag. T hey have m ade a b ig e ffo rt to move toward highe r

co rpo ra te gove rnance w ith the deve lopm ent o f the Novo M ercado . A lo t o f the new issuances com e ou t o f the

Novo M ercado . which is a good th ing. T he C VM regu la to r has becom e m ore m ino rity -inve sto r friendly . T he rea re still a number o f la rge companies ou t the re tha t have the dua l sha re c lass and do no t have tag -a long

rights fo r m ino rity sha reho lde rs . T h ings happen and then inves to rs ge t hu rt. T h is w ho le issue is a work in

p rogre ss no m atte r w here you a re . T he re has been a huge improvement ove r the pas t 10 -15 yea rs . It is le ss

abou t the countries and mo re abou t the companies . C orpo ra te gove rnance is important in m y inve stment

dec is ion. In mos t cases . w ha t you have in La tin America a re companies contro lled by fam ilies o r groups o f

fam ilies . o r p a rtly s ta te ow ned. T hey have sha res lis te d in the m arke t and the re m ay be a conflic t o f in te res t

be tw een the contro l group and the m ino rity sha reho lde r. W e try to figu re ou t if the management in p lace is

the re to w ork fo r eve rybody o r fo r the contro l group ."

Investo rs' su ggestio ns o n h ow Latin A m erican co mp anies can im prove corpo ra te

governance

W hile many inves to rs recogn ize tha t La tin American companies have made s trides tow ard improving

co rpo ra te gove rnance in recent yea rs . they po in t ou t tha t sta nda rds s till va ry w ild ly am ong com panies and

countr ie s. Investo rs em phas ize tha t they w ill avo id inves ting in com panies w ith poo r gove rnance p rac tices o r

tha t the se compan ies must trade a t a s ign ificant d iscount to a ttrac t the ir cap ita l. Inves to rs sugges ted a

number o f ways tha t La tin American companies can fu rthe r improve co rpo ra te gove rnance to a chieve the

s ta nda rds tha t e xist in de ve lo pe d m ark ets .

Nea rly ha lf o f the su rvey pa rtic ipants sta te tha t co rpo ra te gove rnance cou ld be im proved by assu ring tha t

m ino rity sha reho lde rs a re trea te d equa lly and. gene ra lly speak ing. tha t the ir bes t in te res ts a re kep t in m ind

w hen key bus iness dec is ions a re m ade . Inves to rs d is like the m ultip le -c lass sha re s truc tu re s tha t m any L atin

A merican co mpanies em ploy and the diffe ring vo ting rights tha t accom pany them . Inves to rs w ou ld like to see

more companies move towa rds a s ing le -c lass sha re s truc tu re and o ffe r tag-a long rights to sma lle r

sha reho lde rs . In gene ra l. inves to rs w ou ld like a grea te r num ber o f L a tin A merican com panies to m ainta inm ore transpa rent ow nersh ip s truc tu res . as the re a re conce rns tha t som e are run to bene fit a se lec t group o f

l arg e sha reho ld e rs .

A pp roxima te ly ano the r ha lf o f the pa rtic ipants

b elie ve tha t co rp ora te go ve rna nce c an b e e nha nc ed

s im ply by increas ing the leve l o f transpa rency tha t

L atin A merica n com panies o ffe r. Inves to rs a re m ore

com fo rtab le inves ting in companies tha t a re fu lly

transpa rent. adhe re to in te rna tiona l a ccounting

s tanda rds . and disclose necessa ry bus iness

in fo rm ation. inc lud ing bu t no t lim ited to . execu tive

compensa tion. sha reho lde r s truc tu re . p roxy

p ro po sa ls . a nd in sid er s ale s.

A sma ll numbe r o f inves to rs a lso be lieve tha t it is

A do pt N ovo M erc ado R ule s vita l fo r L a tin American com panies to have an

independen t B oa rd o f D irec to rs a nd to sepa ra te the

0% 10% 20% 30% 40% 50% ro les o f C EO and C ha irm an. S om e partic ipants sta te

tha t L a tin A merican countries shou ld fo llow B raz il

S ug ge stio ns fo r Im pro vin g C o rp ora te

Gove rnance*

P ro te ct In te re sts o f M in or it y

Shareholders

I mp r ov e T r an s pa re n cy &

Disclosure

Independen t

B oa rd /S ep era tio n o f C E O & . ..

*P artic ip an ts ha d the o ptio n o f p ro vid ing m ultip le re sp on se s. O nly

re sp on se s re ce ivin g fo ur o r m ore m en tio ns a re d is pla ye d.


and emu la te the Novo Mercado . as it has en h anced

the cred ib ility o f B raz ilian com panies and im proved

11



J.P.Morgan

o ve ra ll co rp ora te g ove rn an ce w ith in the co untry .


"H aving one s ing le c lass o f shares w ou ld be a huge im provem ent fo r the en tire La tin Am erican reg ion. B raz il

has m ade grea t p rogress, bu t even in B raz il there are s till som e companies tha t have multip le c la sses o f

shares. "

"C orpo ra te governance cou ld be im proved in La tin Ame rica by crea ting and enforc ing fa ir shareho lde r

s truc tu re s, rem oving du al shareho lder s truc tu res a nd by c re ating m ore inde pende nt B oards ."

"C orpo ra te gove rnance cou ld be im proved by enfo rc ing a one-share , one -vo te prac tice . I w elcom e the recent

in itia tives by Braz il's N ovo Mercado to e lim ina te pre fe rred shares or super vo ting righ t shares where an

individua l owns 10% of the company but his vo tes have 7-to -1 vo ting powe r, so he there fo re contro ls the

company. T hings like tha t a re so outda ted, bu t they s till go on in some marke ts . It is m ore the structu re than

the governance itse lf. I a lso w elcom e the N ovo M ercado 's m ove to sepa ra te the cha irm an and C EO function .

An area where m ost com pan ies cou ld im prove in La tin Am erican countrie s is reporting on ins ider trading and

d isc losure po licy , such as te lling ow ners or execu tive m anagem ent the c losed periods or b lackou t periods

when they are a llowed to se ll s tock or no t."

"La tin Am erican com panies need to be m ore m ind fu l o f m inority shareho lders , ins tead of jus t m anagem ent

and contro lling groups . In B raz il, as we ll a s ac ross La tin America , the b ig issue is tha t m ost groups a re

contro lled by somebody , bu t they m ust no t fo rge t tha t th is indiv idua l is no t the so le owne r o f the company

and tha t the company is lis ted . It s ta rts w ith the governm ent m is trea ting m ino rity shareho lders . T here fo re , it

is im portant to be m indfu l o f m inority shareho lders and be m indfu l tha t the ir in te rests shou ld be a ligned w ith

m ana ge me nt in re ga rds to re tu rns."

"The best th ing tha t La tin Am erican com panies can do to im prove co rpora te governance is provide m ass ive

d isc losure . T hat way, even if w e don 't agree w ith the company , as long as we unders tand what they a re

do ing, we can choose whether or no t to buy the company. T here are a lo t o f rea lly good oppo rtun itie s ou t

there where we do not invest because of the lack o f c la rity . If they were ab le to disc lose bette r, w e wou ld be

a ble to go in and invest."

"The key issues a re tim ely reporting o f financ ia l num be rs, o ffe ring m eaningfu l d isc lo sure , o ffe ring access to

m anagement, and having proper pro tections, such as s ingle -c lass shares, tag-a long righ ts in the case o fta keover, a nd som e so rt o f m inority p ro tectio ns in p la ce to avo id se lf-dea ling by ins ide rs ."

"O ne way in wh ich corpora te governance cou ld be im proved in La tin America is fo r com panies to have

independent Boards. A lso , they shou ld disp lay grea te r transparency in te rm s o f the ir sen io r m anagem ent's

pay and adhere to the h ighest leve ls o f the stock exchange. In B raz il tha t w ou ld m ean comply ing w ith Novo

M ercado ru le s. L astly , it is im portant to have o ne sha re c la ss ra ther than tw o share c la sses ."

"B raz il has som e issues w ith the d iffe rent le ve ls o f corpo ra te governance am ong diffe ren t com panies. Y ou

can't a ssum e tha t a company has good corpora te governance because it is lis ted on the BO VE SPA . There a re

a ll these diffe ren t leve ls o f corpo ra te governance , so ge tting everyone to im p rove the ir game and ge tting

some unifo rm ity wou ld be a good way to go."

"O ne area where La tin Am erican com panies cou ld im prove corpora te gove rnance is the lack o f transparency

su rround ing the shareho lder s truc tu re tha t we have discussed . In Mexico you have some cases wherefo re igners don't ge t vo ting righ ts - tha t is even m ore im portant than the shareho lder s truc tu re . Fore ign and

m in ority s ha re ho ld ers n ee d m ore p ro te ctio n."

Investors ' use o f the Sell S ide

W hen cons ide ring L a tin American investm ents , survey partic ipants re ly on the se ll s ide to ga in access to

m anagement and to conduc t com pany-spec ific re search . The ma jo rity o f inves to rs find the se ll s ide ve ry

use fu l in ge tting them an audience w ith La tin American management team s, bo th th rough non-dea l road




J.P.Morgan

show s and equ ity confe rences. W hile som e inves to rs s ta te tha t they conduct the ir ow n prop rie ta ry research,

the ma jo rity find the se ll s ide 's company-spec ific re sea rch a va luab le comp lem ent to the ir own ana lys is o f

La tin Am erican com panies. 20% o f investo rs s ta te tha t they use the se ll s ide fo r m acroeconom ic fo recasts

and industry research to unders tand the reg ion and the m arke ts in w hich these com panies ope ra te . S eve ra l

inves to rs use the se ll s ide to lea rn loca l goss ip and unders tand what is happening on the ground in La tin

America . L astly , a sma ll number o f investo rs use the se ll s ide to he lp them fine-tune the ir financ ia l m ode ls

a nd to co mp are e arn in gs e stim ate s.

S e le ct in ve sto r c omm en ta ryH ow Investo rs U se the S ell S ide in L atin A merica*

C omp an y R e se ar ch

"I use the se ll s ide fo r every thing.

don't have much o f a trave l budge t, so I

like to have loca l peop le who

unders tand the ma rke t give m e

feedback and provide ins igh t in to what

th e lo ca ls a re th in kin g."

A rra ng e M ee tin gs /A cc es s to

Managemen t

M a cr o/In du st ry R e se ar ch

L o ca l G o ss ip "I use the se ll s ide to keep up w ith

com panies, to a rrange com pany tours ,

Model ingto p rovide access to m anagement, andto provide mo re on-the-ground,

0% 10% 20% 30% 40% 50% 60% 70% 80% b e sp o ke r es e ar ch ."

"For us , the se ll s ide has been very

he lp fu l in te rm s of a rranging m eetings

w ith m anagement in L a tin America .

Tha t has been cruc ia l. W e sta rted as a very sm all fund. W e are m uch bigger today, bu t we defin ite ly lean on

the se ll s ide fo r m anagement meetings. T he research is he lp fu l as we ll. W e use the research mo re fo r a L a tin

American investm ent than we wou ld use it fo r a U .s . inves tm ent. W e can't ge t on the ground qu ite as eas ily in

L atin A me rica , e sp ec ia lly in the initia l s ta ge s. T he re fo re , the se ll-s id e re se arch is de fin ite ly he lp fu l."

*Inve sto rs ha d th e o ptio n o f c ho os in g m ultip le re sp ons es .

"W e use the se ll s ide a lo t fo r research because we do not have an inte rna l team . For eve ry secto r o r

com pany, we have about tw o ana lys ts tha t we regard as the best fo r know ledge and cross-checking

info rm ation. W e use the se ll s ide fo r confe rences and da ily in fo rm ation on corpo ra te events . W e view the se lls ide as be ing c ritica l. T he y bring som e essentia l inpu t tha t he lps us m ake o ur de cis ions."

Investment appeal of a U.S. listing

60% of investo rs fee l tha t a u .s . lis ting increases the appea l o f a L a tin American company because of the

enhanced liqu id ity tha t it p rovides, espec ia lly w ith respec t to less liqu id m arke ts such as C hile , C olom bia and

Pe ru . Inves to rs be lieve tha t lis ting in the u .s . a lso ra ises a company 's p ro file , exposes it to a la rge r base o f

inves to rs , and poten tia lly increase s its se ll-s ide co verage. S om e inve sto rs fee l m ore com fortab le investing in

U .S .-lis ted shares because of the stringent regu la tions and d isc losu re requ irem ents imposed by the stock

exchanges. Investo rs a lso favor u .s . lis tings because they he lp c ircum vent IO F taxes and other obstac les to

in ve stin g d ire ctly in lo ca lly -lis te d s ha re s.

40% of resp ondents (p redo minantly T ie r 1 investo rs , w hich can typ ica lly invest m ore e as ily in loca lly -lis ted

shares) do no t fee l tha t a u .s . lis ting m akes a L atin Am erican com pany m ore appea ling . T hese inves to rs s ta te

tha t if a com pa ny 's loca l sha re s a re su ffic iently liqu id, the y do no t p re fe r a u .s . lis ting.

A to ta l o f 72% of N orth Am erican-based inves to rs find tha t a u .s . lis ting m akes a Latin Am erican equ ity m ore

appea ling , while E u ropean investo rs a re sp lit 50 /50 on the sub ject. A s no ted above, T ie r 1 investo rs a re

la rge ly indiffe ren t tow ard a u.s . lis ting , bu t 64% and 65% of T ie r 2 and T ie r 3 investo rs fee l tha t such a lis ting

boosts the appea l o f a La tin American company, m a in ly because they have firm or fund mandates tha t




J.P.Morgan

p revent them from inves ting in equ ities traded ou ts ide N orth Am erica . F ina lly , 71% of hedge funds favo r a

u .s . lis ting as com pared to 54% of trad itiona l m anagers .

Is a U .S . L is tin g M ore A pp ea lin g?S e le ct in ve sto r c omm en ta ry

"T he re is no doub t tha t a u .s . lis ting makes a La tin

A merican com pany m ore appea ling. B y lis ting in the U .S .,the demand is much b igge r. T he re a re more peop le tha t

look a t it. W e canno t inves t d irectly in La tin America . W e

have to pay swaps , w e have to go through broke rs , and we

need to pay fees . It is no t easy . T he re a re a lso liq u id ity

issues . L is ting in the u .s . m akes tha t a lo t eas ie r."

"I th ink tha t a fu ll u .s. lis ting makes a company m ore

ap pea ling. T he L eve l I lis tings a re re la tive ly m eaning less .

W hen you have a fu ll lis ting w ith u .s . G AAP financ ia ls and

nes Uo liqu id ity in the U .S ., it is va luab le . A lo t o f the Novo

Mercado lis tings in B raz il a re a loca l lis ting p lus a 144A ,

w hich is fine , bu t it essentia lly m eans it is a lo ca l lis ting. T he 144A im plies tha t it m igh t trade ove r the counte r

he re . W hen you ge t a fu ll lis ting, you ge t a lo t o f u .s . liqu id ity , w hich makes the sha re s more liq u id ove ra ll.

T he requ irem ent to p rovide u .s . G AA P info rm ation ends up be ing a pos itive ."

"A U .S . lis ting m akes a L atin A merican com pany m ore appea ling because it resu lts in access to ano the r la rge

popu la tion o f peop le who inves t in equ ities . T he u .s. has deve loped a cu ltu re tha t p romotes mak ing

inves tm ents . It is a positive th ing to open a com pany up to a la rge r sha reho lde r base ."

Investm ent appea l o f a N VSE or N ASD AQ lis ting

Three -qua rte rs o f su rvey pa rtic ipants be lieve tha t a NYSE or NASDAQ listing makes a L a tin American

com pany m ore appea ling than if it we re traded ove r the counte r, due to inc reased trad ing liqu id ity and lower

risk assoc ia ted w ith the s tringent d isc losu re requ irem ents requ ired by these s tock exchanges . T hese lis tings

a re a lso m ore appea ling to inves to rs because they ra ise a com pany 's North Am erican p ro file and open it up

to re ta il inves to rs and sm all ins titu tiona l inve sto rs w ho m ay face difficu lties inve sting in ove r-the -counte r

secu rities . S eve ra l inves to rs s ta te tha t a N YS E o r N AS DA Q lis ting is p re fe rab le to be ing traded O TC because o f

g re ate r p ric e tra ns pa re nc y a nd le ss v ola tility .

O ne-qua rte r o f pa rtic ipants do no t f ind a N YS E o r N AS DA Q lis ting p re fe rab le so long as the re is am ple trad ing

liq uid ity . S eve ra l o f these inves to rs a re skep tica l w he the r a N YS E or N AS DA Q lis ting e nsu res good co rpo ra te

gove rnance and po in t ou t tha t some exchange-lis ted com panies s till have gove rnance p rob lems. S ome

partic ipants h igh ligh t the cos ts o f lis ting on the N YS E o r the N AS DAQ as a de te rrent to m id - and sm all-cap

compan ies .

Is a n N Y SE /N A SD AQ L is tin g M ore

Appeal ing? S e le ct in ve sto r c omm en ta ry

.Yes • No

"An exchange lis t ing is m ore appea ling than trad ing ove r

the counte r. W hen you have a fu ll lis ting the s tock tends tobe much more liqu id . It a lso a ttrac ts a b igge r u .S .

inves tm ent base com pared to only be ing lis ted loca lly w ith

an O TC trad ing he re . T he re is a d iffe rence in the repo rting

requ irem ents w hen a com pany lis ts on an exchange ."

"An NYSE or NASDAQ lis ting makes a La tin American

company more appea ling because the more p laces a

com pany is lis ted, the m ore it has to d isc lose . It a lso opens

Depos ita ry Rece ip ts G roup 14



J.P.Morgan

up the m arke t to U .S . investo rs w ho don't w ant to (o r can 't) inves t in the sha res loca lly ."

"An NYSE or NASDAQ lis ting wou ld make a La tin American company more appea ling than if it we re traded

over the counte r because of liqu id ity and because the re a re reta il investo rs and traders w ho can 't buy ove r-

the -counte r o r fo re ign secu rities . O r, they can buy them , but it is a to ta l hassle . If I want to buy one of these

secu rities in my persona l po rtfo lio , it is a hass le and it is expensive . But if the re is a U .S . lis ting that

ind ividua ls c an b uy inexp ens ive ly , co mp anie s w ould ge t a lo t m ore inte re ste d inve sto rs."

"A lis ting on the NYS E or NAS DAQ is a lways p re fe rab le . I a lways te ll com panies in Latin A merica tha t a p ink

shee t is a waste o f time . D o a B ig Board lis ting, o r do no thing. Don't go w ith p ink shee ts o r Level I lis tings . I

know tha t it is expens ive to lis t, bu t just go s tra ight fo r the who le hog. L is t on the NYSE or NASDAQ or don't

lis t a t a ll."

C om pe tin g fo r e merg in g m arke t in vesto rs

W hile many o f the survey pa rtic ipants be lieve tha t Latin Am erican companies are e ffec tive ly com pe ting for

emerg ing marke t investo rs - po in ting out tha t L a tin America is firm ly on the ir rada r sc reen - they offe red

s eve ra l su gge stio ns to ga in the a ttention a nd a ttra ct the ca pita l o f a dditio na l e me rg ing m ark et inves tors .

N early one-th ird o f pa rtic ipants s ta te tha t L atin A merican com panies can m ake them se lves m ore a ttrac tive toemerg ing marke t inves to rs by improving the ir corpo rate gove rnance s tandards . In addition to the

recomm ended changes noted earlier, such as p ro tec ting the rights o f m ino rity shareho lde rs, genera lly ,

inve sto rs re co mm end m oving to wa rds a s ing le c las s o f sha re s. Inves tors a ls o rec om mend a bolish ing re la te d-

party transactions , e lim ina ting fam ily contro l, ma inta ining an independent Boa rd, and improving vo ting

rights.

O ne -q ua rte r o f p artic ip ants v ie w im pro ving transp are nc y a nd p roviding c om ple te fina ncia l d is clo su re a s w ays

to boost the appeal o f La tin American companies. T hese investo rs stress the importance o f frequently

repo rting financ ia l resu lts and p roviding a ll o f the re levant financia l da ta in a clear and comprehensive

manner. La tin American companies shou ld also discuss the ir country 's macro environment and discuss

infla tio n e xpe ctations a nd ho w tha t w ill im pac t the ir b usine ss a nd e arn ings re sults.

Nearly 20% of su rvey partic ipants believe that La tin American com panies can be tter com pete fo r investo rs

by provid ing pe rformance gu idance and continu ing to execute against the ir s ta ted s tra teg ies . As no tedea rlie r, increasing the vis ib ility o f sen io r m anagem ent by having them regu la rly trave l ou ts ide La tin A merica

and active ly in terac t w ith the inves tment comm unity a re seen as o ther im portant ways for La tin Am erican

c om panie s to ge ne ra te m ore inve sto r inte re st.

Investo rs a lso view im proved E nglish p rofic iency am ong Latin Am erican execu tives and IR teams as vita l to

building a broade r inves tm ent base. Inves to rs po int ou t tha t w hile E nglish fluency is fa irly com mon in B razil,

companies in som e of the sma lle r L atin American m arke ts wou ld bene fit from m aking more p rogress in this

a rea o f investo r communica tions . As discussed ea rlie r, provid ing financia l reports , p resenta tions , and

ea rnings ca lls in E nglish a re im portant s teps fo r L atin A merican com panies to im prove the ir com pe titiveness

fo r c a pi ta l.

Investo rs a lso recom mend reduc ing p riva te sha reho lde rs to increase the public float, and lis ting on a U .S .

s tock exchange to inc rease trading liqu id ity and the investm ent appea l o f La tin A merican com panies. S eve ra l

inve sto rs s pec ula te that c om panie s c ou ld b ene fit fro m p ursu ing inve sto rs in A sia .




J.P.Morgan

W ays to B ette r C om pete fo r E merging M arke t

Investors*

I mp ro ve C o rp or ate G o ve rn an ce

C o n si st en t E x ec u ti on

I nc re as e V is ib ility o f M a na ge m en t

E lim in at e L a ng ua ge B a rr ie r

In cre as e L iq uid ity a nd P ub lic F lo at

0% 10% 20%

*P artic ip ants ha d the o ptio n o f p rov id ing m ultip le re sp onse s. O nly res po nse s

re ce iv ing th re e o r m ore m en tio ns a re d is pla ye d.


30%

"La tin American countries a re do ing a

good job o f competing fo r emerg ing

m arke ts inves tors . C ompanies shou ld

trave l to the U .S . more o ften. It would

he lp if fewer companies were fam ily-contro lled. T he genera l trend, led by

B raz il, has been good. B raz il is opening

the way and getting funds looking a t

L atin A merica . If o ther countries fo llow

their lead and have s im ila r standa rds for

co rpora te governance , good liqu id ity in

the ir s tocks , and have non-fam ily-run

com panies , they w ill bene fit. T he trend is

there . Now they need to continue it and

exe cu te o n it."

"O n a co mp ara tive b asis , L atin A me rica n

countries are doing ra ther we llcompared to Asian stocks. W e see the collapse of mu ltip le share classes as being very favorab le . W e have

been seeing that m ore in Latin Am erica . L atin Am erican countries shou ld focus on improving vo ting rights,

independent rep resentation on the B oard, s im plic ity and cla rity ove r econom ic voting rights , and having one

share c lass . T hose a re the key fac tors tha t w e look a t. T he frequency o f repo rting is important too . W e

apprec ia te clarity and adherence to in te rna tiona l accounting standa rds. I a lso app rec ia te w hen a com pany

repo rts in E nglish. T hese a re pre tty basic th ings that make a company a ttrac tive . T hey rea lly make a

d i ff e r e n c e ."

"T he B razilians a re do ing ve ry w ell in com peting for em erg ing m arke t investo rs and I'm struggling to see how

they could do much be tte r. H owever, in terms o f Pe ru, C olomb ia , and C hile , they cou ld be tte r compete by

reso lv ing the ir language barrie r and da ta issues . By da ta, I mean tha t the data must be o ffe red in E nglish.

From w ha t I have seen, the am ount o f d isc losure is fine ."

"I be lieve that La tin American companies shou ld go out to Asia to try to a ttrac t investment do lla rs . T heyshou ldn 't jus t come to New York o r T o ronto ; they shou ld try go ing out to London and Asia more often

because they are com pe ting w ith those em erg ing m arke ts too. L atin A merican com panies shou ld unde rstand

A sia and its investo rs. T he inves tm ent base is ve ry b ig and the investo rs a re w illing to take m ore risks ."

"L a tin Am erican com panies can be tte r com pe te fo r emerging m arket investo rs by enhanc ing the quality o f

the ir p resenta tions and by improving transparency . T hey shou ld g ive you more financ ia l da ta in the

p resenta tions so that you can rea lly see wha t drives the company. T he m ore transpa rent that they can m ake

th em s elv es , th e b ette r."

"L a tin American companies can be tter compe te fo r emerg ing market inves to rs by continu ing to enhance

transpa rency. In the wake o f th is who le mess in C hina, my first thought is tha t they should jus t keep

improving transpa rency . They a lready have bette r transpa rency than the As ian companies. T ha t is the best

th ing tha t they can do . T hey shou ld jus t keep doing right by the ir inves to rs. It is abou t honesty and in tegrity .

S econdly , they should keep pe rform ing w ell. If the ir bus iness trends stay s trong, tha t is wha t w ill a ttrac t the

do lla rs. T hey shou ld continue to do w ha t they reasonab ly can to im prove com munications and transparency

w ith inves to rs w ithou t b eing pro motio na l. H aving the E nglish-la ngua ge c ommunica tions re le as ed a longside

the fore ign-la ngu age c ommu nic atio ns w ou ld b e ap prec ia te d a s w ell."

"P resenting and guid ing inves to rs a re two a reas where La tin Am erican com panies could be tter compe te for

emerg ing marke t investo rs. Many Asian companies do a grea t job o f that. G u idance is an a rea that needs

improvement; qua rte rly gu idance would be use fu l. S ome o f the sma lle r com panies cou ld bene fit by m ak ing




J.P.Morgan

the ir m os t recent p resenta tio ns o r the con fe rence ca ll tra nsc rip ts ava ilab le . S om e a lre ady do , bu t fo r those

tha t do no t ha ve th is in fo rm atio n a va ila ble , th is w ou ld be a q uick fix ."

In ve sto rs' o utlo ok fo r L atin Am eric a

Inves to rs v iew the La tin A merican reg ion as a p rom is ing inve s tm en t oppo rtu n ity o ve r the next one to th ree

yea rs . T he reg ion 's econom ie s a re expec ted to grow as a re su lt o f com pe lling dem ograph ic trends , su ch as

g row ing m iddle -c la ss popu la tio ns , tha t w ill d rive demand fo r goods and se rv ices . Inves to rs a re a lso

encou raged by im pro ving co rpo ra te gove rnance s tanda rds , low leve ls o f deb t, the p reva lence o f na tu ra l

re so urc es , a nd c ontin ue d de ve lo pm en t o f c ap ita l m ark ets a nd infra stru ctu re a cro ss the re gio n.

N ea rly 70% of inves to rs v iew Braz il as L atin A merica 's m os t p rom is ing inve s tm en t oppo rtun ity ove r the next

three yea rs . Inve s to rs p red ic t tha t a s its m idd le c la ss rap id ly e xpands and its ro le in the globa l e conom y

continue s to grow , B ra z il w ill en jo y tremendous econom ic grow th . Inve s to rs fee l tha t grow th w ill a lso be

su pp orted a nd prop elle d b y its gove rnm enta l s ta bility , its w ea lth o f na tu ra l re sou rce s, its s tro ng cu rre ncy , its

re la tive ly w ell-re gu la te d c ap ita l m arke t, and the in fras truc tu re it is b uild ing ahea d o f the 201 4 W o rld C up and

2016 O lym pics . Inve s to rs a lso po in t o u t tha t w hile cu rren t va lua tions in the reg ion a re reasonab le , B ra z il

o ffe rs a w ide r va r ie ty o f se c to rs in w hich to inve s t than any o f the o the r L atin A merican m arke ts .

N ea rly 40% o f the su rve y pa rtic ip an ts nam e C olom b ia as ano the r p rom is ing inve s tm en t oppo rtun ity .

C olom bia is v iew ed as be ing ea rlie r in its g row th cyc le and 'm ore em erg ing ' than m any o the r countr ies in the

reg ion. T hus , inve s to rs see m ore po tentia l up s ide in C olom bia than in som e o f the m ore deve lo ped La tin

Am erican coun trie s as it 'ca tches up ' and fu rthe r deve lop s its e conom y. Inve s to rs a lso like the fac t tha t

C olom bia 's go ve rnm en t see ms pro -bu sine ss and is ta king the righ t s te ps to ward e nco urag ing inve stm en t in

th e c ou ntr y.

O ne -qua rte r o f the su rvey pa rtic ipants v iew M exico as a p rom is ing inves tm ent oppo rtun ity to o . Inve s to rs

cons ide r M exico a grow ing m arke t w ith a la rge popu la tion expe rie nc ing inc reas ing wea lth and d riv ing

consum er dem and . M exico 's inhe rent econom ic leve rage vis -a -v is the U .S . is a lso view ed by inve s to rs a s an

a ttrac tive fe a tu re . T hey see a compe lling ups ide fo r Mexico a s the U .S . economy continue s to re cove r.

P artic ipants a re a lso favo rab le tow ard M exico because o f the trad ing liq u id ity o f its s tocks , its fre e -tra de

a gre em ent w ith th e U .S ., a nd th e ge ne ra l s ta bility o f its go ve rnm en t.

A no the r 25% o f inves to rs v iew C hile a s a com pe lling inves tm ent oppo rtun ity . C hile 's s ta b le and deve loped

econom y, coup led w ith a re liab le gove rnm ent, leads inve s to rs to be lieve tha t the re is le ss risk invo lved in

inves ting the re . A dditio na lly , inve sto rs b elie ve tha t C hile has go od co rp ora te gove rnance a nd w ill en joy so lid

G O P gro wth ove r the nex t thre e yea rs .

Inves to r sentim en t rega rd ing Peru is m ixed. A pp roxim ate ly 20% of inve s to rs v iew Peru a s a p rom is ing

m arke t ove r the ne xt three ye ars . Jus t like C olo mb ia , inves to rs se e P eru a s an u nder-p ene tra te d m arke t w ith

p lenty o f ro om fo r g row th . H oweve r, 25% of pa rtic ip ants v iew Pe ru as a less p rom is ing country , p r ima rily

be cause o f recent changes in the country 's gove rnm ent. Inves to rs a re wa iting to see how the le ftis t

P re side nt-e le ct w ill a pp ro ach the eco no my and the p olic ie s he m ight im ple me nt b efo re they inve st in P eru .

40% of inves to rs v iew A rgen tina as an unp rom is ing coun try in w hich to inves t ove r the next three yea rs .

Inves to rs exp re ss conce rn abo ut go ve rnm ent ins tab ility , cu rre ncy trou bles , pa st u nde rp erfo rm anc e, and low

co rp ora te gove rnance s tanda rds . S im ila rly , 38 % of inves to rs v iew V enezu ela as a cou ntry to a vo id , p r im arily

be cause o f the unp red ic ta b le na tu re o f the gove rnm en t and Hugo C havez 's p ropens ity fo r in te rfe r ing in

e c on om ic m a tt er s.

In te res ting ly , w hile T ie r 2 a nd T ie r 3 inves to rs v iew B raz il as the m ost p rom is ing inves tm ent op po rtu nity , T ie r

1 pa rtic ipants see M exico as the m os t p rom is ing oppo rtun ity , w ith 67% of T ie r 1 respondents favo rab ly

d iscuss ing M ex ico 's p rospec ts . Fu rthe rm ore , T ie r 2 and T ie r 3 pa rt ic ipants a re mo re favo rab le tow a rd

C olom bia than T ie r 1 inves to rs , w ith 50% and 35% of T ie r 2 and T ie r 3 pa rtic ip an ts d iscu ss ing C olom bia 's

po ten tia l, a s opposed to jus t 22% of T ie r 1 pa rtic ipants . N ea rly 90% of hedge funds h igh ligh t B raz il a s a




J.P.Morgan

p rom is ing investment oppo rtun ity, as compared to 58% of trad itiona l inves tment m anagers . C onverse ly ,

trad itiona l managers a re more favo rab le toward Peru than hedge fund managers by a margin o f 16

percentage po in ts. Las tly , N orth A merican investo rs a re m ore positive than the ir global counte rpa rts on the

ou tlook fo r a ll La tin Am erican countries as ide from Peru , which 23% of E uropean investo rs and only 11% of

N orth A meric an inve stors na me d as a pro mis ing inve stm ent o pp ortun ity.

M os t p rom is ing C ou ntrie s O ve r the N ext 1- 3

Years*

Brazi l

Colombia

Chi le

Mexico

Peru

Argent ina

0% 10% 20% 30% 40% 50% 60% 70%

L eas t P ro mising C ou ntries O ve r the N ext 1- 3

Years*

Argent ina

Venezue la

Peru

Colombia

Ecuador

Mexico

Brazi l

0% 10% 20% 30%

*Inve sto rs ha d the o ptio n o f na min g m ore th an o ne c ou ntry .


40%

"T he La tin American countries w ith the

most p rom is ing outlook a re B raz il, C hile ,

and C olomb ia . E ven A rgentina shows

prom ise ove r the next 1 to 3 yea rs . T h is is

primarily due to the expec ted grow th and

increased consumption of the region's

m iddle -c lass citizens . In the next coup le o f

months , Peru cou ld a lso show prom ise . Its

development p rimarily depends upon

w hich direction the governm ent w ill take in

shaping the country . W e need to ge t more

vis ib ility on tha t be fo re inves ting in thecountry."

"Mexico seems to be the most prom is ing

La tin American country in the next 1 to 3

yea rs because it is ve ry close ly tied to the

u . s . economy, which is recovering. It a lso

has a free -trade agreem ent and a centris t

governm ent. B razil, on the o the r hand, has

a ve ry le ft-w ing gove rnment tha t is

in tervention ist and can make m is takes.

V enezue la shou ld be avoided a ltoge the r

because of its government. A rgentina

shou ld a lso be avo ided because o f itspo litica l sys tem , centra l bank and

m one ta ry polic ies, am ong a w ho le num ber

o f o th er is su es ."

"T he La tin Am erican countries a ll have so

much prom ise. B raz il is obvious ly a b ig

market and it is grow ing. Bu t the smaller marke ts like C olomb ia and Peru have qu ite a lo t go ing fo r them as

well. Howeve r, the grow th in Peru depends on the po litica l environm ent. Peru and C olomb ia a re ve ry unde r-

pene tra ted econom ies , so they a re p rom ising in tha t they cou ld become more like the res t o f the world. A t

the moment, the stock market doesn 't fu lly re flec t the fu ll country . T here isn 't a pa rticu la r marke t tha t I

wou ld avo id, a lthough some marke ts are more expens ive than othe rs. C hile is somewha t more expensive

than some of the othe rs right now , so I find it ha rd to ge t good ideas the re , bu t it is s till a grea t economy.

A rgentina is a lso less p rom ising because o f its po litica l risks and the fac t that it is a bit dependent on theu . s .

T he y a re a ll gre at c ountrie s; it p rim arily de pe nds on tim ing."

"I see B raz il and Mexico as the most p rom ising areas ove r the next 1 to 3 yea rs. Bo th countries a re b ig

consumer econom ies w ith pre tty good disposable income grow th (B razil more so than Mexico ), which is

driving the increase in consum ption. B raz il obvious ly bene fits from the na tu ra l resources tha t they p rovide to

p laces like C hina . B razil is a lso compe lling because of the in fras truc tu re bu ild ou t ahead o f the O lymp ics .

Mexico is a big consumer econom y w ith grow ing wealth . Re ta il in Mexico is m odern iz ing, so people a re able

to ge t wha t they want m ore conveniently . T he re a re drug vio lence issues , but those are fina lly sta rting to be

addressed by the gove rnment. T ha t p roblem is a long way from be ing so lved bu t a t least the re is some




J.P.Morgan

ac tiv ity the re . T he re a re no t any countries tha t w e w ould avo id; w e look at com panies on a com pany-spec ific

b as is . W e are no t m acro inve stors ."

"C olomb ia looks most p rom is ing ove r the next 1 t o 3 yea rs because there a re oppo rtun ities fo r the market to

deve lop . S ince the country is less-deve loped, new inves tments and the imp lementa tion o f a new

infrastruc tu re w ill enab le m ore inves tm ent oppo rtun ities to arise in the futu re . T he re are no L atin A merican

companies tha t I p lan to avo id , bu t I w ou ld pu t a spec ia l wa tch on A rgentina and Peru fo r obvious reasons.

T he po litica l enviro nm ents in thos e c ountries rea lly o utw eigh e ve ryth ing e ls e."

"C hile and B razil a re ve ry p rom is ing countries . P eru and C olom bia are p robab ly the m ost p rom ising because

they a re more em erging. They a re ea rlier in the cyc le and just sta rting to ge t the ir ac t toge the r. V enezue la is

the leas t p rom is ing reg ion because things seem to be crazy the re . T he politica l uncerta inty does not help ."

"B raz il de fin ite ly looks prom is ing ove r the next 1 to 3 yea rs. O uts ide o f B raz il, I don't have a particu larly

s trong op inion on any o f the o ther countries. T he num ber one reason for this is that B razil's consumer base is

ve ry la rge and is grow ing ve ry qu ickly . T he grow th is bringing people from be low the pove rty line to above

the pove rty line ve ry qu ick ly . T he consumer there is unleve red, so they have a lo t o f spending capacity.

A ny th ing that is consum er-driven in B raz il potentia lly has a lo t o f grow th behind it."

To learn more , please contac t :

Jo se ph D oole y, A me rica s R egional D R H ead

+ 1212 622 9225

dooley [email protected]

This do cum ent is fo r re ference purpo ses only. It is not a co mplete a na lys is of the m atters discussed he re in a nd is not intended as legal adv ice . a nd m ay not

address issues o r take into account facts re levant to the issuer. The issue r should consu lt w ith its own legal advisor regard ing the factua l and o ther

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