1st Forum Value Latam

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1 1st Forum Value Latam August 21, 2014 Argentina, the Land of Opportunity for the Opportunistic Claudio Maulhardt Copernico Capital Partners

2 Miami, August 2014 ARGENTINA, THE LAND OF OPPORTUNITY for the opportunistic

THERE S NEVER A DULL MOMENT IN ARGENTINA As long as I'm the president, those who want to make money at the expense of devaluations that the people have to pay, will have to wait for another

3 THERE S NEVER A DULL MOMENT IN ARGENTINA As long as I'm the president, those who want to make money at the expense of devaluations that the people have to pay, will have to wait for another government. Not with us, not with us, not with us CFK, May 6, 2013 Here in Argentina we have an excess of good faith; we have shown it by accepting responsibility for our debts CFK, June 20, ROFEX Futures ARS per USD May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

4 A FRONTIER MARKET, NOT A FRONTIER ECONOMY Second largest economy in South America with GDP at $600 BN A member of the G-20 group of nations Population of 40mm with high literacy rate and developed countries life expectancy Substantial middle class; GDP per capita of $ 14,000 - second only to Chile within Latam But, Political and economic mismanagement have given Argentina a bad name FX controls and illiquidity have led to the Frontier label for index purposes Argentine bonds and equities have lagged behind those of other EM markets 3

5 A RECURRING VICIOUS CYCLE Deficit Money printing Inflation Flight to USD Inflation Inflation Money printing Salaries Deficit 4

6 A DECADE WON IS COMING TO AN END! e GDP Growth (% y/y) 8.8% 6.4% 2.0% -1.5% CPI (INDEC) 8.4% 8.8% 10.3% 29.1% CPI (private estimates) 8.4% 22.5% 25.0% 35.0% Current Account (% of GDP) ,3-0.5 Gross Public Sector Debt (% of GDP) Public sector budget (% of GDP) Exchange rate (ARSUSD) BCS exchange rate (ARSUSD) Reserves (USD Bn) Source: Bloomberg 5

THERE IS GROUND FOR RENEWED HOPE The Kirchners have ruled the country for a decade with a

about a whole new game: there is no re-election for Cristina Kirchner in 2015 The cost of

on new debt The clock for political change is ticking All potential candidates are aware

7 THERE IS GROUND FOR RENEWED HOPE The Kirchners have ruled the country for a decade with a strong hand and lousy populist, antimarket policies October mid-term elections brought about a whole new game: there is no re-election for Cristina Kirchner in 2015 The cost of economic adjustment could be spread over time by portfolio flows and the capacity to take on new debt The clock for political change is ticking All potential candidates are aware that the era of abundance has come to an end It is not broken and there is the political will to fix it 6

8 ALIKE, BUT NOT THE SAME! 2001 Now Net public sector debt (% of GDP)* Public sector due in one year (% of GDP) Soybean price (USD/ton) Total crops (MM tons) Current account balance (% of GDP) -1.4% -0.5% Central Bank reserves (USD bn) USD-denominated deposits (% of GDP) USD-denominated loans (% of GDP) Real interest rate (vs. real inflation rate) 7.0% -10.0% Real multilateral exchange rate Unemployment rate 19.2% 7.1% * Net of debt held by government agencies Source: Estudio Bein y asociados It is hard to find the conditions for a typical Argentine crisis 7

9 THE OPPORTUNITY 8

10 THE OPPORTUNITY THE Argentine financial assets offer a compelling investment opportunity OPPORTUNITY Overlooked Undervalued Under-researched Underweight Uncorrelated with major markets Catalysts for re-pricing of risk exist Political change in 2015 Unavoidable macroeconomic adjustments Default likely to confirm that economic policy will change Re-education of investors as to reality vs. perception in Argentina Graduation from frontier to emerging market Valuations and political change create the opportunity to earn outsized returns from an investment in Argentina 9

11 VALUE IN THE LONG END OF THE USD CURVE Spread to EMBI-Latin Spread to EMBI-Brazil Until AUG-2000 AUG-00 / JUL-01 AUG-01 / JUN-05 JUL-05 / JUN-07 JUL-07 / AUG-14 CURRENT Discount USD (NY Law) upside through Dec-15 (Entry price $83; YTW 10,8%) Compared to Brazil 4,25% 2025 (Price $102,5; YTW 3,95%) if spread to Brazil goes to... Capital gain Current income Total return CAGR Implicit price Implicit YTM 100 bps 59% 14% 73% 47% 131,64 4,95% 200 bps 46% 14% 60% 39% 120,81 5,95% 300 bps 34% 14% 48% 32% 111,16 6,95% 400 bps 24% 14% 38% 25% 102,55 7,95% 10

12 THE OPPORTUNITY IN ARGENTINE EQUITIES THE! Companies have learned how to survive, and in some cases even strive, in a very negative business environment OPPORTUNITY! The universe of investable stocks is small our focus is on 30 names! The largest, most liquid stocks trade in ADR form on the NYSE! Market cap/gdp at ~10% is among the lowest in EM zero IPOs since 2008! Because there is no inflation adjustment allowed, financials fail to reflect the market value of assets! The most appropriate way to appraise Argentine stocks is to assess the true value of assets (i.e., replacement cost, physical asset valuation) 11

13 EQUITY MARKET IS ALSO CHEAP Example 1. Media Example 2. Banks Ticker' Ctry' EV'' ($'MM)' Total'' RGUs'' (MM)' EV'/'' RGU'($)' EV'/' EBITDA' 2014e' Ticker' Ctry' Mkt' Cap.'' ($'bn)' Market' share' Price'per'' 1%'of'mkt' share' ROE'' LTM'' (%)' P/BV'' (x)' GDP'/' capita'' ($)' CVC! US! ! 3,2! 4.181! 7,7x! ITUB! BZ! 83,8! 18,6%! 4,51! 21,0! 2,1! ! DTV! US! ! 38,4! 1.575! 7,5x! BBD! BZ! 67,4! 14,1%! 4,78! 17,4! 1,9! ! NETC! BZ! 8.709! 6,4! 1.361! 8,7x! SANT! CL! 12,0! 18,2%! 0,66! 22,2! 2,7! ! MEGACPO! MX! 3.893! 3,8! 1.017! 9,9x! CIB! CO! 14,7! 22,1%! 0,67! 11,4! 1,7! 8.009! CABLECPO! MX! 1.907! 2,0! 969! 6,2x! GFNORT E! MX! 19,2! 13,9%! 1,38! 13,4! 2,2! ! VTR! CL! 2.175! 2,6! 838! 7,2x! BAP! PE! 12,3! 33,4%! 0,37! 15,0! 2,7! 6.940! GCLA! PY! 150! 0,1! 1.220! 6,1x! GGAL' AR! 1,6! 10,0%! 0,16! 41,8! 1,6! ! GCLA' AR! 1.626! 5,2! 312! 3,4x' 1 (AT&T(acquisition(price( (( (( (( 2 (Sale(price(to(a(Paraguayan(party(in(July(2012( (( (( *(Only(cable(TV(ops:(printed(media(+(content(+(open(TV(&(radio(for(free( Source:(Bloomberg;(regulators,(Copernico(calculations! 12

14 EQUITY MARKET IS ALSO CHEAP Example 3. Telcos Example 4. Utilities Ticker' Country' EV'(USD' MM)' Total'clients' (MM)' EV/Client' (USD)' EV'/' EBITDA'(x)' Transportadora'de'Gas'del'Sur'(NYSE:'TGS)' ENTEL! CL! 4.383! 10,4! 423! 4,7! OIBR! BZ! ! 73,9! 175! 2,7! AMX! MX! ! 342,9! 334! 5,8!!!!! EV!($MM)! 619!! EV!/!EBITDA!*! 3,9x!! You!get!for!free!the!entire!gas!transportation!business!**!!X!8,627km!of!pipelines! AXTELCPO! MX! 987! 1,5! 650! 4,5! TEO' AR! 3.576! 28,3! 126! 3,1! Source: Bloomberg; Copernico calculations NTL' AR! 1.495! 15,7! 95! 2,3!!X!30!compression!stations!!X!A!depressed!avg.!tariff:!USD!0,026!per!m3!for!firm!contracts!!!!!!! *(GNL(Business(only(!!!! **(2%(of(EBITDA(today(N(80%(in(2000(!! In!Colombia,!TGI!has!3,957!of!pipelines!and!12!gas!compression! plants!! Its!average!tariff!is!!$0.1173!per!m 3! One!month!ago,!EEB!paid!$880MM!for!31.92%!of!TGI! 13

15 EQUITY MARKET IS ALSO CHEAP Example 5. Oil & Gas Ticker' Country' EV'(USD'BN)' Developed' reserves'(mm' boe)' EV'/'Reserves' (USD)' EV/EBITDA' 2014e' PBR! BZ! 170,1! 7.606! 22,4! 5,5x! EC! CO! 72,3! 1.400! 51,6! 4,8x! PRE!CN! CO! 10,1! 394! 25,5! 3,3x! REP!SM! SP! 42,3! 594! 71,2! 6,7x! PZE' AR! 1,3! 113! 11,6! 2,2x! YPF' AR! 16,4! 822! 20,0! 3,5x! Source:(Bloomberg;(Copernico(calculations! 14

16 MARKET FAR FROM PREVIOUS HIGHS Both in equities and in debt MSCI AR EMBI AR yield EMBI LAT yield

17 A REASSURING FACT November 2009 It was time to sell February 2014 Is it time to buy? 16

18 COPERNICO ARGENTINA FUND! Copernico is uniquely positioned to identify and capture investment opportunities in Argentina! CAF is a single-country, multi-asset vehicle designed to capture value and information asymmetries that arise during the re-rating process! The Fund invests in both fixed income and equity instruments! Active management and the ability to research case by case gives this product an edge versus structured index products! Strategy targets returns in excess of 25% p.a. limiting tail-risk events! Twice in the past Copernico has perceived similar turning points and invited investors to participate through CAF; in both cases returns for day 1 investors exceeded 25% 17

19 ABOUT COPERNICO! An independent asset management firm, founded in 1999, registered in Bermuda and headquartered in Buenos Aires, Argentina! Local presence and intelligence! Offices in Argentina, Uruguay and the US! Investment mandate is total return focused exclusively on Latin America and the Caribbean! Research beyond the numbers to gain real understanding of the risk factors, focusing on investment fundamentals to uncover value! Dedicated investment team of 10 professionals! Proven track record with a limited use of leverage.! Track record of transparency and open communication with investors 18

20 Thank you!

APPENDIX ECONOMIC INDICATORS DEVELOPED ECONOMIES

16 QUARTERLY INVESTMENT STRATEGY APPENDIX ECONOMIC INDICATORS DEVELOPED ECONOMIES Purchasing Managers Index EMERGING ECONOMIES Purchasing Managers Index US Eurozone Japan Brazil Russia India China Industrial