LatAm corporations pass on Spain

Over the last two decades, a growing number of companies in Latin America have reached out to new markets and opportunities. A region considered poor by international business standards, Latin America has given birth to a new phenomenon, the multilatinas.

During the 1990s, as a wave of liberalization overtook the region under new democracies, removing state protection and subsidies for industry, foreign investment poured into Latin America. Local firms took advantage of their knowledge of intricate domestic and regional political and regulatory systems, their understanding of culturally appropriate marketing and financing strategies aimed at low-income consumers, and the challenges of broken or unconventional distribution systems. They also did the footwork in restructuring, upgrading and acquiring the necessary know-how.

Hopes that Spain would become the gateway to Europe now that Latin American companies are looking to expand outward have not materialized. Despite the presence of many of the continent's leading companies on the Latibex index, the multilatinas remain unsure about Spain, particularly since the crisis kicked in five years ago. For the moment, few of these players have established a European base here, still seeing the United States and the rest of Latin America as their main markets.

One of the few multilatinas to establish a presence in Spain is Brazilian steelmaker Gerdau. The company, which reported sales of $20.4 billion last year, and which owns 40 percent of Spain's Sidenor steel company, has a nine-story office building in Madrid from where it directs its European operations.

You tend to locate your headquarters where you are most likely to develop your business"

Mexican holding company, Alfa, which has a turnover of $13 billion (60 percent of which comes from outside Mexico), is also active in Spain. In 2012, its components affiliate Novak acquired a plant in the Basque Country with a 400-strong workforce after buying US company J.L. French. Unlike Gerdau, which only manufactures in Spain, Novak operates in other European countries.

Brazilian energy giant Petrobras, also listed on the Latibex, and which has a number of joint ventures with Repsol, has opted for London over Madrid for its European headquarters, citing the UK capital's pre-eminence as a financial center. Its other main European base is Amsterdam, due in large part to the Dutch city's proximity to Rotterdam, Europe's largest port.

London was also the destination of choice for Brazilian cellulose company Suzano, also listed on the Latibex, which also has a headquarters in Switzerland. Vale do Rio Doce, one of the biggest mining companies in the world with sales of $45.8 billion, also chose London.

The few Latin American companies that have established their headquarters in Spain appear to have done so only when they have bought into Spanish companies, such as Mexico's Cemex, one of the world's largest cement and building materials manufacturers, which has been in Spain since 1992 after buying into Valenciana de Cementos, making Spain the center of its European, African, and Asian operations. It too has a base in London, from which it runs its northern European operations.

Spain is simply not seen as an ideal stock exchange destination"

One company which has made Spain its sole European base is the Bimbo bakery group, which has sales of $13.3 billion and a workforce of 125,000. Bimbo took over the Spanish company of the same name at the end of 2011 after it bought US outfit Sara Lee's bread division.

But the list of multilatinas that have chosen other countries for their European operations is long: Brazil's Embraer, a global leader in the construction of medium-sized aircraft, initially opted for Spain (Aernnova remains one of its main suppliers), but later decided to move to France. Its European base is in Villepinte, close to Paris's Charles de Gaulle airport. Another Brazilian company, JBS Friboi (sales of $34.9 billion), a global meat-processing group with five factories in Italy, has chosen London as the location for its European activities. It's the same story with pipe manufacturer Tenaris (turnover $10.8 billion), and which has factories in Italy and Romania.

Jesús González Nieto, the head of the Latibex, says that he understands why Latin American companies prefer London to Madrid: "Leaving aside the question of where you find your financing, you tend to locate your headquarters where you are most likely to develop your business." This may explain to some extent why the Latibex is still seen as a largely residual bourse, failing to attract European and Spanish investors, and which handles little more than two or three million euros a day.

Alejandro Varela of Renta 4 brokers adds another reason: "Spain is not seen as an ideal stock exchange destination, which means that it simply doesn't come up on the radar of big Latin American companies."

And finally, another reason for choosing another European location could be that some of the multilatinas with a presence in Spain are simply not doing that well. Bimbo, for example, has lost money here, and continues to perform poorly. Cemex has been hit hard by the collapse of the property market. Gerdau's sales have fallen, and it is immersed in a labor dispute.

But the experts say that even if the multilatinas do opt for other European countries to run their operations from, this will still have a beneficial knock-on effect for Spain.