Mercado Libre, Now Latin America’s Most Valuable Company, Reaches $60B Market Cap and More...

Mercado Libre, Now Latin America’s Most Valuable Company, Reaches $60B Market Cap and More...

Mercado Libre, Now Latin America’s Most Valuable Company, Reaches $60B Market Cap

Mercado Libre, Argentina’s most valuable tech company has seen its stock surge in the past couple of weeks, mainly due to customers’ reliance on its e-commerce and payment platforms, which seem to be contingency-resistant.

According to The Economist, the company’s market cap more than doubled during the pandemic, reaching the $50 billion mark. Currently, the e-commerce giant’s tipping capitalization is at US$60 billion.

The company’s increasingly close relationship with PayPal is taking MercadoLibre to unforeseen levels. While perceived by many as an e-commerce platform, its fintech business already accounts for more than 40 percent of its net revenue, according to the company’s Q1 report.

Mercado Libre- though 21 years old- appears to be operating more like a 2010’s startup: where growth comes first, and profit follows later.

The company billed over $3 billion last year, although it is still operating under losses for its third year in a row, “which we could assume is being relieved by PayPal’s cash injection in the company last year”, according to Contxto. The company is heavily investing in improved logistics throughout Latin America, hence the current Profit and Loss statement.

Last week, a report stated that the last quarter was PayPal’s “best, quarter, ever”. It would be an exaggeration to assert that this was exclusively due to its partnership with Mercado Libre, especially since it is pursuing similar strategies with Asia’s Gojek.

But at the same time, the developing stage of fintech adoption in Latin America surely accounts for a big chunk of their growth.

As Paypal’s Dan Schulman wrote over LinkedIn,

“PayPal is now available as a payment option at online checkout at the more than 100,000 merchants where Mercado Pago, the region’s fast-growing digital payments network, is accepted throughout Brazil and Mexico.”

PayPal is now also at the disposal of Brazilian and Mexican merchants to use on the platform’s marketplace as an easy cross-border payment alternative.

“These developments open the door for PayPal’s more than 346 million customers around the world to shop at hundreds of thousands of new merchants in Latin America,” Schulman writes.

Stanford GSB Impact Fund Makes First Latin American Investment in UBits

The Stanford GSB Impact Fund recently invested an undisclosed amount in UBits, an online corporate training platform. This is the first investment in a Latin American business for the venture capital fund.

As reported by LatAm List, UBits offers over 400 courses in Spanish for corporate training across 10 countries in Latin America. The courses range from customer services to sales and much more. The startup has previously received $2.5M investment from YCombinator, Magma Partners, Spectrum28, and GE32.

“We are very happy that Stanford GSB has chosen to invest in UBits. We know it will be a great support as we continue to create high-quality content to train thousands of professionals in Latin America,” said Julián Melo, CEO of UBits.

The global pandemic has seen many people look to online education for training as they work from home. UBits will use the capital to expand its range of online courses and to continue expanding in the region.

“The quality and relevance of the courses, the satisfaction of the clients, and the professional skills and ability of the Ubits team convinced us that this should be the fund’s first investment in Latin America,” said Daniel Uribe, an investor at Stanford GSB.

Brazilian Fintech Stone Acquires Linx for BRL 6 Billion

The Brazilian payments company Stone announced the acquisition of retail management platform Linx, reports the Brazil Journal.

The deal brings together a retail management software firm that recently expanded its portfolio to payment solutions (hence the launch of Linx Pay in late 2018 and the acquisition of Pinpag earlier this year) with an acquirer that was moving forward in the retailer’s value chain delivering other solutions – including management software.

LatAm List reports that,

“Stone is paying BRL 6.04 billion (about $ 1.11 billion) for Linx – 90% in cash and 10% in stocks – and will issue $ 1 billion in new shares to finance the purchase. The value includes a premium of 30% over the market value of Linx at the close of the market this Monday.”

Stone founder André Street, and Linx founders Alberto Menache and Nércio Fernandes had previously considered a merger, but the subject had never advanced, says the Brazil Journal. About a month ago, Stone’s CEO, Thiago Piau, came to Linx with a more advanced proposal.

According to a person familiar with the negotiations, Stone considered the acquisition of management software development firm TOTVS, but favored Linx because its customer base is more similar to that of Stone.

Brazil's Biggest Lenders Let Clients Delay $44B in Payments

Brazil’s top four listed lenders are giving months-long extensions for consumers and companies to repay 235 billion reais ($43.98 billion) in outstanding loans, a move to give financially squeezed borrowers breathing room.

According to Reuters, the loans subject to forbearance programs- which range from 13% of Banco Santander Brasil SA’s (SANB11.SA) portfolio to 10% of Itau Unibanco Holding SA’s (ITUB4.SA)- are an indicator of potential defaults. It was unclear how many borrowers, squeezed during the coronavirus crisis, will be able to pay their debts once the grace periods end.The extensions, granted between March and June, vary from 60 to 180 days, depending on the bank. That echoes the situation at their U.S. cohorts, some of which acknowledge more loans may go bad as forbearance plans expire.

Banco do Brasil SA (BBAS3.SA) has offered extensions on 11.6% of its portfolio, while Banco Bradesco SA (BBDC4.SA) has done so on 12.75%.

Executives have declined to make firm predictions for future losses. They have said defaults may be smaller than initially feared, pointing to preliminary signs the Brazilian economy could recover.

Still, bank CEOs speaking in conference calls over the past two weeks were unanimous in predicting that 90-day default ratios would spike by year-end or the beginning of 2021, when the forbearance periods end. The ratio stands at around 3% for the country’s biggest lenders.

Itau’s CEO Candido Bracher expects default ratios to reach all-time highs, while Bradesco’s CEO Octavio de Lazari said in an interview it is likely to be around 3.7%.

“Loan delinquency rates are likely to be worse than in previous crises, but recovery should also be faster,” said Goldman Sachs’ equity analyst Tito Labarta.

Brazil’s declining benchmark interest rates, cut again on Wednesday to a record low of 2%, could make debt burdens more manageable than in the past, Lazari added. In 2016, amid Brazil’s most recent recession, interest rates were at 14.25%.

Brazil’s four biggest lenders have already set aside 18.9 billion reais in extra COVID 19-related loan provisions in the last two quarters, depressing profits.

“In Latin America, Brazilian banks should have the best performance amid the coronavirus crisis, as they have already increased provisions a lot,” said Labarta.

A new bill approved by Brazil’s Senate on Thursday evening capping interest rates on credit card debt and overdraft lines at 30% per year is likely to add more pressure on banks, if the country’s lower house also approved it.

Brazil's COVID-19 Death Toll Climbs Above 100,000, with No Relief in Sight

On Saturday, Brazil’s death toll from COVID-19 passed 100,000. This count has continued to climb as most Brazilian cities reopen shops and dining, despite the fact that the pandemic has yet to hit its peak in the Latin American nation.

Confronting its most lethal outbreak since the Spanish Flu a century ago, Brazil reported its first cases of the novel coronavirus at the end of February. The virus took three months to kill 50,000 people, and just 50 days to kill the next 50,000, according to Merco Press.

Led by President Jair Bolsonaro, who has played down the gravity of the pandemic and fought lockdowns by local officials, Brazilians who protested nightly from their windows in the first months of the outbreak have met this grim milestone with ambivalence.

“We should be living in despair, because this is a tragedy like a world war. But Brazil is under collective anesthesia,” said Dr. Jose Davi Urbaez, a senior member of the Infectious Diseases Society.

Dr. Jose Davi Urbae and other public health experts have raised the alarm that Brazil still has no coordinated plan to fight the pandemic, as many officials focus on “reopening,” which is likely to boost the spread of the disease and worsen the outbreak.

The health ministry on Saturday reported 49,970 new confirmed cases and 905 deaths in the last 24 hours, raising the number of cases to more than 3 million and the death toll to 100,477.

Brazil’s Supreme Court and Congress, institutions that have criticized Bolsonaro’s handling of the pandemic, respectively declared three and four days of national mourning for the 100,000 dead. The president did not comment publicly.

“We don’t know where it will stop, maybe at 150,000 or 200,000 deaths. Only time will show the full impact of COVID-19 here,” said Alexandre Naime, head of São Paulo State University’s department of infectious diseases.

Naime said the only comparison may be diseases brought by colonizers, such as smallpox, that decimated indigenous populations when Europeans first arrived in the Americas.

While that history is long past, Urbaez said Brazil today seems equally resigned to the COVID-19 deaths to come.

Zen Monk, Zoom and Virus: Inside Argentina's $65B Debt Deal

As the clock struck midnight on August 4, Argentine negotiators knew a deal was close to break the deadlock on a $65 billion debt deal, one of the biggest ever sovereign restructurings which has tested global financial markets.

The talks had been dragged back on course by last-ditch efforts between government advisers, major creditors including private equity giant BlackRock- which clashed openly with Argentina earlier this year- and Economy Minister Martin Guzman.

According to The Guardian, Guzman and BlackRock’s key negotiator Jennifer O'Neil, in weekend talks, had arrived by Sunday night at the framework of a deal bridging the gap between the two sides. It needed to be cleared with other creditors, but the involvement of the world’s largest asset manager was key to getting it across the line. Guzman gave the green light to advisers, including top executives from Bank of America and HSBC, saying: “Get it finished”, one person close to the talks recalled.

Talks had been complicated since the start of the year in a process hindered by the coronavirus pandemic, sailing past multiple deadlines as key creditors clashed with Guzman, a 37-year-old economist with close ties to Nobel laureate Joseph Stiglitz.

In mid-June, two of the major creditor groups slammed the negotiations as having failed. A “final” government offer made in early July was rejected too and that same Sunday Guzman warned creditors a no deal would see talks stall for months.

Now, with the political will behind a deal, advisers including Bank of America’s country chief Sebastián Loketek sat across the digital negotiating table from O'Neil and Pablo Federico from Ayres Capital, another important creditor.

“The negotiation that started on Sunday was intense, it was tough,” the source said. “We slept two or three hours between Sunday to Tuesday at 3 a.m.”

Calls went on between the creditors to rally behind the proposal which settled at around 54.8 cents on the dollar, a compromise between what had become entrenched positions of the government and the three creditor groups that unified in July.

Graham Stock, an emerging markets strategist at creditor BlueBay Asset Management, part of the so-called Ad Hoc group with BlackRock, said everything had been “fluid” right up until Monday. But the concessions got “unanimous” support.

“They managed to craft a midway point between our latest proposal and the government’s latest offer that was satisfactory to other members of the group and to the government.”

At 3.01 a.m. on Tuesday, Guzman wrote on Twitter that Argentina and the three key creditor groups had reached a deal.

‘PERSONAL CONNECTION’

At times a deal had looked a distant prospect, raising fears of legal battles that Argentina’s creditors recalled the country’s messy restructuring after a default in 2001-02.

At a low-point in the talks in May, government officials aimed barbs, especially at another of BlackRock’s negotiators Gerardo Rodriguez, a former Mexican finance undersecretary who had been key to raising BlackRock’s exposure in the grains powerhouse during the previous government of Mauricio Macri. Creditors criticized Guzman for side-lining people in talks.

A source close to the government recalled an early exchange during which Rodriguez told Guzman creditors may “just wait for the next government, however soon that may be”.

As talks progressed, officials and creditors said Rodriguez took a less prominent role while O'Neil, an expert on corporate restructuring, came to the forefront.

“There was a personal connection which helped establish some level of trust,” said a person close to the talks.

BlackRock declined to comment and Reuters could not reach Rodriguez, its portfolio manager for emerging markets.

‘ZEN-LIKE CALMNESS’

Guzman, though politically untested, was an academic expert on sovereign restructurings. Since taking office he has helped Argentina get strong support from prominent economists and built a close relationship with the IMF and even Pope Francis.

Stiglitz, Guzman’s mentor at Columbia University and co-author of many papers including one on economic crises published during the talks, said the minister carries “Zen-like calmness, laser focus and expertise.”

“He brought in a knowledge set and analytic ability that was unusual,” Stiglitz told Reuters. “The Alpha males in the credit world are used to dealing with countries that don’t have that degree of confidence.”

Riccardo Grassi, risk manager at creditor Mangart Capital Advisors, agreed the minister was usually calm but said he could at times become irritated. The person close to the government and with direct knowledge of the talks described Guzman as “like a Zen monk warrior.”

In December, Fernandez and Guzman made their first offer to creditors in April. At around 40 cents on the dollar it was an aggressive opening bid.

Gorky Urquieta, co-head of emerging markets debt at Neuberger Berman, a holder of Argentine bonds, echoed many creditors, calling the initial offer “absolutely unacceptable…It needed five minutes to reject it,” he said.

Since then, Urquieta said, the talks had been “very Argentina style, a lot of drama around it, a big, long saga that seems to be coming close to a resolution.”

‘MOMENT OF HAPPINESS’

That drama was heightened by the pandemic. Argentina imposed a nationwide lockdown on March 20 and closed its borders, meaning negotiations that once would have been face-to-face suddenly had to be done on video platforms like Zoom.

As the endgame neared, creditors said advisers like UBS and Mens Sana helped ease tensions, helping navigate local politics and facilitate easing communication between the creditors themselves, who were at times fragmented.

Others identified important go-betweens like Sergio Massa, the well-connected head of Argentina’s lower house of Congress.

“Sergio helped a lot to prevent people from exploding,” the first source said, adding that Massa’s role was to assure his market contacts “that Argentina wanted to fix things.”

In mid-July creditors rallied behind their own proposal, demanding changes to legal clauses and around 3 cents on the dollar more in value. The groups - that together could block a deal - rejected the government’s ‘final’ proposal.

Carl Ross at GMO, who was on the steering committee of the Argentina Creditor Committee, said the groups combining was vital for leverage, but also there was growing recognition that backing the government into a corner came with risks.

“It was clear that politically it was going to be impossible (for Argentina to raise the offer) and there was a risk the more radical elements would win out,” he said.

When the final Zoom calls were made to seal the agreement, Marcelo Delmar, an advisor from Mens Sana, said “there was more a sense of relief than euphoria” (The Guardian).

Creditors still have to formally accept the deal by an Aug. 24 deadline, though three of the people close to the talks said it looked like at least 85-90% would take part, maybe more.

“Yes it was a moment of happiness,” said Delmar. “But then life goes on.”

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