Bonus In the Offing?

The Bolsa de Valores de Colombia (BVC) has steadily developed since 1928 into becoming the leading capital markets entity in Colombia. Competition did exist for a while, with the long-standing Bogotá Stock Exchange also sharing the stage with rivals in Medellí­n and Cali, though these markets tended to specialize more in commodities rather than in broader financial instruments, equities, commodities, and the like. By 2001, the three exchanges were combined to create the BVC, and through regional link ups the exchange has looked to deepen the market and improve flows and liquidity levels.

In 2009, the BVC joined up with its peers in Argentina and Peru to lay down the foundations of the Latin American Integrated Market (MILA), which sought to unify the trading and settlement activities of all three markets for local investors and make them more attractive, especially as most global interest was being drawn to the regional emerging market heavyweight, Brazil. In 2014, Mexico’s stock exchange joined the MILA system as part of new efforts to promote mutual trade and investment along Latin America’s Pacific coast, and by 2016 the MILA system was well in place to challenge the previous dominance in investors’ minds of the Bovespa in São Paulo. However, the Bovespa is never far away. As the BVC is also listed as a private company on the market, its second largest shareholder just happens to the BM & Bovespa SA (9.84%), with private equity specialist Bancard International Investment owning a slightly higher 9.94% shareholding.

In 2016, the BVC is looking to celebrate not just the potential peace dividend Colombia is expecting, but also its leadership of the World Federation of Exchanges (WFE) for the year. Although only joining the WFE 2004, the BVC is set to host representatives from the 63 members of the WFE at a conference in Cartegena in November 2016, in cooperation with the Asociación de Comisionistas de Bolsa de Colombia (Asobolsa). Gaining such an international spotlight is important for emerging market exchanges, often having to work hard to attract capital and meet the exacting needs of the larger investment concerns located in North America, Europe, and— increasingly — East Asia. On the trading mechanics side, the BVC is also looking to have the NASDAQ X-Stream INET trading platform operative as of 2017. The new trading platform has one key aspect that should spark interest in a number of foreign brokers and investors: the potential to engage in more sophisticated algorithmic and high frequency trading.

However, generating investor interest remains a battle. Over the years, the number of listed equities has waned somewhat, as some shift their main listing to larger foreign markets, while others fail to make the grade. A total of 89 companies called the BVC home in 2008, though by mid-2016 the number of listings had fallen to 71. No initial public offerings (IPOs) or secondary listings had been added since 2014, though in late 2015 a local architectural glassmaker sought to place a secondary listing on the BVC. Tecnoglass already had a primary listing on the NASDAQ, taking advantage of the larger investor pool in North America in 2003 when it staged an IPO. However, the listing on the BVC was complicated by its late filing of quarterly reports soon after entering the market, seeing the stock suspended for a short time in May 2016. The Baranquilla-based company, specializing in architectural glass and targeting exports to the US market, complied with requests by both NASDAQ and the BVC to amend its financial statements, and reported a bumper year, with revenues up 21.2% in YoY terms to $239.4 million for 2015.

On the fixed incomes side of the market, the BVC reported 131 issuers as of mid-2016, while issuances over the 2008-2015 period were considered to have brought in some COP103 trillion. The number of bonds issued has stayed relatively steady over the years, though are slightly down on the high point of 152 set back in 2009. The fixed market saw some COP512 trillion in trading over 1H16, with the cash market taking up some 58.81% of those volumes. Derivatives also are active on the BVC, especially in the FX and interest rate futures categories. FX futures saw volumes of some COP41.99 trillion over 1H16, while interest rate futures were at a lower COP29.10 trillion for the same period.

ON THE BOARDS

The main index for the BVC, the COLCAP, had a fairly good run over the first half of 2016, bucking the more docile trend seen among many of its regional peers. The index managed to climb some 13.8% year to date to 1,313.18 points by the end of 2Q16. The relative stability of the Colombian peso over the period only added to the solid advance seen on the boards. However, it should be remembered that the market’s most recent heyday was back as recently as early September 2014, when the COLCAP was trying in vain to break through the psychologically important 1,800-point barrier. That it didn’t, and that mainstays in the index dependent on previously strong hydrocarbon and commodities prices retreated, saw the COLCAP whipsaw back to test sub-1,100 point levels in early December 2015. However, it was largely from that point that not only had hydrocarbon prices begun to stabilize, but Colombia was also beginning to feel the possibility of a peace bonus, once agreements on a ceasefire with internal rebel groups had been achieved, and a deal seemed in the offing.
As of mid-2016, the equity side of the exchange had a total market capitalization of some COP308.34 trillion ($108.34 billion), according to the BVC. Despite the slump in energy and commodity prices, which hit the Colombian market hard since 2014, local energy giant Ecopetrol retains its top place in terms of market cap, at some COP57.36 trillion ($19.67 billion), accounting for 18.15% of the main index. Ecopetrol has had a challenging year, engaging in a widespread cost-reduction plan as well as divestments from some minor or underperforming assets to bring it back into operational health and retain its role as one of Colombia’s main export earners. Next in line was Banco de Bogotá, with a market capitalization of some COP19.38 trillion ($6.65 billion). The bank retains its leading place in the Colombian finance market, with assets of COP152.3 trillion at end-2015, with its foreign operations accounting for 42.2% of the total. Interestingly, fourth placed Grupo Aval is the majority shareholder in Banco de Bogotá, retaining a 68.74% stake, on a market capitalization of COP17.71 trillion ($6.07 billion). In third place, however, is investment player Grupo Sura, which came in at COP17.96 trillion ($6.16 billion) as of end-June 2016. It too had significant investments in some of the other top-10 companies by market capitalization on the BVC, including Grupo Argos, Bancolombia, and Grupo Nutresa, operating in a wide range of sectors from construction through to FMCGs. Rounding out the top five is interesting entrant Empresa de Energí­a de Bogotá, the country’s second largest power transmission company. The interesting thing to note is that the company’s main shareholder on 76.28% remains the local government of Bogotá city, though Ecopetrol also has, for now, a minority stake that it is looking to wind down as part of its afore-stated divestments from non-core activities.