OBG talks to Juan Pablo Córdoba Garcés, President, Bolsa de Valores de Colombia (BVC)

Interview: Juan Pablo Córdoba Garcés

How do BVC’s fees compare with other markets in the region, and what impact does this have?

JUAN PABLO CÓRDOBA GARCES: Of the five principal markets in the region, two are more costly than Colombia. Transaction costs may be high, but settlement and clearance fees are low, levelling out for a reasonable overall cost. One must also bear in mind the size of the market. Amortising a million shares is entirely different from amortising 2000 shares. The Colombian market has been growing and we are promoting the development of the market’s infrastructure and rationality of processes, which will lead to lower costs in the long term while increasing transaction volumes. We also expect to see a decrease in operating costs as processes become automated and streamlined. We are aware that the general costs of the market have limited its growth.

What lasting effects did Ecopetrol’s initial public offering (IPO) have on the market?

CÓRDOBA: That IPO broke two different paradigms. The first is that since the Colombian market is very small it had been thought not possible to gain sufficient funding without resorting to international markets. The Ecopetrol listing brought in $2.6bn, demonstrating that the Colombian market has the capacity to mobilise significant resources if done properly. That sum came entirely from Colombian investors. The second paradigm shift was that Colombians, who on average are quite poor, were able to access a type of financial product, which, up to that point, had been considered a luxury. The investors came from over 1000 municipalities and from all levels of society. This confirmed that the market undoubtedly has the ability to receive new listings, and that Colombians are willing to participate accordingly if they are invited to do so.

How will the sixth reforms to the country’s tax code affect the tax status of foreign investors?

CÓRDOBA: A new draft of the legislation concerning foreign investors will contain very clearly defined rules.

Foreign investors will now declare as income earners in Colombia, which they can easily transfer as tax credits to their home countries. The tax will be done exclusively through withholding, such that once they file the withholding, their tax obligations in Colombia cease.

Additionally, they are not obliged to declare their income, i.e. file an income tax return. It’s an overall simplification for the foreign investor. Moreover, for tax purposes losses can be used to offset gains, allowing the investor to pay taxes only on what are truly capital gains. There is also a proposal for the reduction in fees to apply to foreign investors.

Why should smaller investors consider the BVC as opposed to less risky options?

CÓRDOBA: With interest rates as low as they are now, which will continue for the next five to 10 years, we’re in a world that favours risk in investment. This is because the return that one will gain from fixed income, mutual funds and traditional savings vehicles will be very limited. As such, the dividend one can receive will more likely than not meet, if not exceed, the interest rate currently offered. What’s more, there’s also the opportunity for appreciation of the stock. For any investor, it is more beneficial to invest in a company, to receive a dividend (although not guaranteed) and appre ciate with the increased value of the shares.

This represents opportunities for countries such as Colombia, as there are many investors who want to take advantage of Colombia’s potential, and they are doing so through equity in companies. Equity is what is going to generate value in the next 10-15 years. No matter what your opinion is of today’s prices, if you project 10-15 years down the line, there are significant expectations for the generation of value in the companies, which will be good for everybody. Colombia is a country where retail is very important, with the sector now representing 30-35% of daily trading volume. I expect nothing less than great gains for the participants in Colombia’s capital market going forward.