VZCZCXYZ0011
RR RUEHWEB

DE RUEHMN #0318/01 1592152
ZNR UUUUU ZZH
R 082152Z JUN 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 9074
INFO RUCNMER/MERCOSUR COLLECTIVE

UNCLAS MONTEVIDEO 000318 
 
SIPDIS 
 
STATE PASS TREASURY FOR LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON EFIN UY
SUBJECT: PRESENTATION BY NASDAQ MANAGING DIRECTOR ON URUGUAYAN 
CAPITAL MARKETS DEVELOPMENT 
 
Ref: Montevideo 303 
 
¶1.  SUMMARY:  Steven Phillips, Managing Director of NASDAQ and an 
experienced financier, came to Montevideo to participate in the 
Innovation Forum (reftel) and to discuss ways in which Uruguay could 
revitalize its moribund capital markets.  In a presentation to the 
Capital Markets Development Group, he emphasized that listing on 
NASDAQ could not only provide Uruguayan firms with more access to 
capital, but also have a significant impact on development of local 
capital markets and economic growth.  His presentation dovetailed 
nicely with the information the Embassy has been providing to a 
public-private working group seeking to develop the local capital 
market as a way to provide Uruguayan firms with the capital 
necessary for expansion and growth into new markets.  END SUMMARY. 
 
¶2.  Although Uruguay retreated from capital markets development 
after the financial disasters of 2002-2003, the participants in the 
Capital Markets Development Group presentation -- including the 
government-owned Banco de la Republica, the BROU AFAP (the largest 
of four investment companies linked to private pension funds), an 
AFAP regulator from the Central Bank, both stock exchanges, 
commercial bankers, corporate financial managers, venture 
capitalists and the World Bank -- were all in strong agreement with 
Mr. Phillips' message that local capital markets development as well 
as increased access to international capital markets is critical for 
Uruguay's future economic growth.  NOTE: The Embassy coordinated the 
initial meetings of the Capital Markets Development Group to bring 
interested parties together to share ideas on developing this 
sector.  The concept resonated among the group and it continues to 
meet on its own with the Embassy as a participant but no longer in 
the lead. 
 
¶3.  Phillips highlighted some of the advantages of listing with 
NASDAQ (or other exchanges) including access to capital, greater 
visibility with a larger investor group and lower costs.  He 
mentioned, however, that listing on NASDAQ would also require 
Uruguayan firms to change the way they do business, in particular, 
in providing greater transparency regarding their business 
strategies and performance, in complying with GAAP reporting 
standards and in electing independent board members.  Phillips said 
that a first step that some emerging market firms have taken prior 
to a full listing is a 144A listing, essentially a placement to 
sophisticated, high net worth investors that does not have the same 
reporting, accounting and governance requirements as a full listing. 
 The consensus appeared to be that this would be a good initial 
option for many Uruguayan firms. 
 
¶4.  Phillips pointed out that firms could list both on the local 
exchange and on NASDAQ and that this would benefit both the firms 
and the local exchange by increasing visibility, the size of the 
potential investor market and the number of firms that would be 
interested in listing.  One partner in venture capital firm 
Prosperitas added that development of local capital markets would 
also likely spur venture capital and private equity investments 
because going public would become a more viable exit strategy for 
these types of investments.  Clearly this would drive economic 
growth as more entrepreneurs are able to fund their ideas.  The 
Price Waterhouse Coopers representative also emphasized the 
importance of local capital markets development in order to be able 
to fund larger projects.  Currently, most of these projects are 
funded through direct investment from Brazilian firms or other 
international investors.  She argued that if Uruguay does not create 
its own sources of capital through development of its capital 
markets, it will wind up as a "country owned by foreigners." 
 
¶5.  Phillips talked about development of other local exchanges and 
capital markets and the impact on investment and economic growth 
citing Chile and Peru as good examples.  He mentioned three key 
factors that are critical to driving growth in local capital 
markets: 
 
-- Creating opportunities for the private sector to own and trade 
shares in state-owned companies will create more savings and 
investment options, will broaden and deepen the market and will 
drive scale by pushing trading volume through the exchanges.  For 
example, even in BOVESPA, the well developed exchange in Sao Paulo, 
the bulk of trading still is in government companies such as 
Petrobras and Banco do Brasil. 
 
-- Increased privatization of pension and retirement plans will 
create more demand for capital markets instruments - both government 
and private sector, and both debt and equity. Additionally, Phillips 
strongly recommended that private pension funds such as the AFAPs 
need to be given flexibility to invest outside their local markets 
if they are to optimize growth and returns.  He pointed to Chile as 
an efficient and successful example of this model. 
 
-- Creating a "market maker" function for issued securities will 
ensure a liquid market so that investors will know that they can get 
in and out of an investment at any time, thus increasing their 
 
willingness to invest. One of the participants from the Exchanges 
strongly endorsed this statement, observing that lack of a market 
maker function back in the market crises of 2002-2003 caused 
investors to lose faith in the market because of their inability to 
exit investments on a timely basis.  He emphasized that for 
investors to move back into the market in a significant fashion, 
they would need to feel confident that they could sell securities at 
any time at a fair market price. 
 
¶6.  Phillips acknowledged that full or partial privatization of 
state-owned companies is still a political hot potato, but 
reiterated his opinion that it will be a critical factor in 
development of Uruguay's capital markets. 
 
¶7.  Phillips commented on the evolution of regional exchanges where 
a number of smaller exchanges join to form a single integrated 
exchange in order to build scale on the supply side, the investor 
side and to reduce costs.  He cited Nordpool as a good example and 
said that Uruguay and some of the other smaller Latin exchanges have 
a similar integration opportunity. 
 
¶8.  As a tangible outcome of this well-received presentation and 
discussion, the Capital Markets Development Group agreed to schedule 
another working session for August. 
 
MATTHEWMAN