PRESENTATION BY NASDAQ MANAGING DIRECTOR ON URUGUAYAN

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