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 Business News | May 2005 
Slim Eyes Expansion Into New Market
 Thomas Black - Bloomberg News
| | Businessman Carlos Slim Helú |
Businessman Carlos Slim Helú, who amassed US23.8 billion from banking and telecommunications, has started a threepronged drive to make money from his country's burgeoning construction industry.
By the end of June, Slim, 65, will spin off his US720 million Ideal fund, created to build and run services such as toll highways and waste-treatment plants. Late last year, Slim formed a construction unit at his Grupo Carso SA industrial company.
And his Grupo Financiera Inbursa SA banking group has earmarked as much as US1 billion to finance building projects. Still, access to financing doesn't guarantee Slim's construction ventures will succeed in competing against builders such as Spain's Iberdrola SA and Mexico's Empresas ICA Sociedad Controladora SA, says Stephaan Peeters, an analyst with Citigroup Inc.'s Grupo Financiero Banamex SA in Mexico City.
"The big advantage for Slim and his companies is his deep pockets and financial discipline," says Peeters, who covers Grupo Carso. "The disadvantage is that they don't have much experience." The engineering unit of Iberdola, Spain's second-largest power company, and other builders, including South Korea's SK Group, that already do business in Mexico also have access to funding, says Rafael Urquia, a Citigroup Inc. analyst. "This is an industry with a lot of competition from companies with their own financing sources," says Mexico Citybased Urquia, who covers Inbursa.
Construction in Mexico, Latin America's largest economy, will grow 4.8 percent this year, according to the Mexican construction chamber. The government alone will award US8 billion of contracts in 2005, Urquia estimates. "Because of the infrastructure demand in Latin American countries, this could be a very big and very strategic area for the group," says Carlos Slim Domit, 38, Slim's son and chairman of Grupo Carso.
Last year, 5.3 percent growth in the construction industry drove Mexico's economy to expand 4.4 percent, the fastest pace in four years. Grupo Carso fell 60 centavos, or 1 percent, to 58.9 pesos. Inbursa's shares rose 18 centavos, or 0.8 percent, to 22.39 pesos. A lack of credit that followed Mexico's 1994 peso devaluation gave international companies such as Bilbao, Spainbased Iberdrola and Seoulbased SK Group, which were able to offer financing, the opportunity to obtain contracts to build oil refineries and electricity plants. Builders such as Tribasa SA and Grupo Mexicano de Desarrollo SA, both based in Mexico City, were unable to offer financing and won little work. They eventually defaulted on their debts.
ICA, Mexico's largest construction company, avoided default by selling assets. In the first quarter of this year, the Mexico City-based builder won US188 million of road, airport and petrochemical contracts and now has a backlog of work valued at US1.8 billion, the most in six years. ICA's first-quarter sales rose 53 percent from a year earlier to 4 billion pesos (US358 million), and the company had net income of 68 million pesos, reversing a loss of 87 million pesos.
In 2004, ICA's shares rose 65 percent compared with a 47 percent increase in the benchmark bolsa index. Ideal, which Inbursa set up last July, has already used its links with sister companies to win business. On March 1, it won a bid to spend 4.17 billion pesos to build and operate a toll highway for 30 years on Mexico's west coast. The fund has hired Grupo Carso to build it and Inbursa will provide the construction loans, says Marco Antonio Slim, 37, another of Slim's sons and chairman of Inbursa. "This is an example of how we can work together," he says.
Slim plans to spin off Ideal from Inbursa and list the fund's shares on the Mexican stock exchange. Each Inbursa shareholder will be given shares of Ideal in the same proportion as their ownership of the bank. Investors probably will be attracted to the Ideal fund because Slim, whose US23.8 billion net worth puts him fourth on Forbes magazine's list of billionaires after Microsoft Corp. founder Bill Gates, Berkshire Hathaway Inc. Chairman Warren Buffett and Mittal Steel Co. Chief Executive Officer Lakshimi Mittal, is a renowned moneymaker, says Christopher Palmer, who helps manage US400 million in Latin American stocks for Gartmore Investment Management in London.
"He has a reputation for managing businesses well, for eliminating wasteful practices and improving efficiency," Palmer says. In one case, investors tripled their investment in four years from the shares they were given of America Movil SA, the mobile telephone company Slim spun off from Telefonos de Mexico SA in 2001. Last month, Slim sold US1.12 billion of shares in Ashburn, Virginiabased MCI Inc. to Verizon Communications Inc of New York. The shares had been converted from defaulted MCI bonds Slim bought for US300 million in 2002. As well as Grupo Carso, Inbursa, America Movil and Telmex, which are all based in Mexico City, Slim controls internet, retail, mining, cigarette, construction materials, food, copper cable and auto parts companies.
Since last year, Palmer has been adding shares of Grupo Carso to his funds because he expects its engineering and construction units to participate in government building contracts. "Mexico has the potential for massive public spending over the next couple of decades," Palmer says. Grupo Carso's construction unit is building five oil platforms for state oil monopoly Petroleos Mexicanos SA, a water- treatment plant in the northern city of Saltillo as well as the Ideal highway. The federal government is expected to seek bids this year to build oil platforms, liquid natural gas plants, electricity generators and dams, said Jose Luis Guerrero, 61, ICA's chief financial officer on an April 29 conference call. Presidential elections in 2006 will spur more government spending, he said.
"Usually, during the last year of the administration there is an increase in public investment," Guerrero said. "This year and next year should be good years." Petroleos Mexicanos needs to double annual investment to US20 billion to begin exploring and drilling deep-water deposits, creating demand for oil platforms, Chief Executive Officer Luis Ramírez said at a Feb. 21 conference. The platforms might be built in Mexico, Chris Sladen, 48, president of BP Mexico, said at the conference. "There's a unique opportunity for Mexico to create a construction industry based around deepwater activity," Sladen said.
Carlos Slim Domit, Slim Helu's son, rejects Peeters' suggestions his father lacks experience in construction. Slim graduated as a civil engineer from National Autonomous University of Mexico and owned a construction company when he first started in business. He has maintained his involvement with the industry by building shopping centers for his retail unit and developing mines, Slim Domit says. "He understands and knows this business," Slim Domit says. |
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