IFLR 1000
The Guide to the World's Leading Financial Law Firms

Many firms in Colombia have a reputation for certain types of transactions or for working in certain industries, but the group of firms that do financial work is small enough that there is not a great deal of real specialisation – most of the firms in the market handle most types of corporate work there is to do in the country. Almost every lawyer we spoke to feels that the amount of money coming into Colombia and the potential for profit there means that more of the big international firms will establish a legitimate presence in the country soon, not just a representative desk or an alliance with a local firm....

Many firms in Colombia have a reputation for certain types of transactions or for working in certain industries, but the group of firms that do financial work is small enough that there is not a great deal of real specialisation – most of the firms in the market handle most types of corporate work there is to do in the country.

Almost every lawyer we spoke to feels that the amount of money coming into Colombia and the potential for profit there means that more of the big international firms will establish a legitimate presence in the country soon, not just a representative desk or an alliance with a local firm. That has yet to occur to any great extent, but it is viewed as being nearly inevitable in coming years.

From an economic perspective, the news in Colombia is mostly positive, yet tempered with some definite negatives. On the bright side, M&A activity is up, the mining and oil and gas sectors are growing and consolidating based on high global prices, and the financial markets are seeing the introduction of more and different types of financial instruments than ever before. Mexico's expected addition to the MILA regional stock exchange will give Colombian investors access to that market in addition to their current access to those in Chile and Peru. Colombian securities will also be available to investors in those countries. The United States – Colombia Trade Promotion Agreement (CTPA) also finally came into effect in May of this year, nearly six years after being drafted. The CTPA eliminates the vast majority of import and export duties between Colombia and the US (the country's largest trade partner), and will phase out most of the remaining tariffs over the next decade.

CONTEXT AND TRENDS It is an excellent time to be in business in Colombia right now and it's a good time to be a financial attorney as well. The country's GDP growth rate continues to hover between 4-5% annually and investors are coming to the country from the region and further abroad....

It is an excellent time to be in business in Colombia right now and it's a good time to be a financial attorney as well. The country's GDP growth rate continues to hover between 4-5% annually and investors are coming to the country from the region and further abroad. Colombia's history as a high-risk, low-security country riddled with drug trafficking problems and guerrilla groups seems further and further removed from the present economic reality. Those problems and others still exist (although to a lesser degree than in the past), but the country's financial momentum continues to make it the darling economy of the Americas.

The extraction industries – mining and oil and gas specifically – were among the busiest sectors in the country last year. Despite the speculation and illicit activities the growth of these areas has attracted in Colombia, they were active fields for M&A transactions: "There has been significant consolidation in [mining and oil] this last year," one lawyer comments. "It was a strategy from the government to reduce both markets to a handful of players rather than 30 or 40 small players and try to formalise those industries. There were regulatory changes encouraging more equity investment and it created some M&A transactions we might not have seen otherwise."

M&A was more frequent than usual over the past year for financial entities, as well. "Right now we're seeing a lot of M&A on the financing side – banks, stockbrokers, intermediaries – we're seeing a lot of movement there," another attorney notes. "In almost all real areas of the economy a lot more muscle is required to be a big player than was needed a few years ago, so acquisitions are fairly common."

Finance itself got a big boost this year from an increase in issuance. One partner notes, "The issuance of notes by Colombian banks has been a very busy field for us. We've participated in six transactions of this kind in the last two years, which is a first for us and a first for Colombia." Another adds, "In the last 18 months we've seen a surge of Colombian bond issuances. I think bond issuances and even bond placements in international markets are going to be a trend going forward."

Bonds alone cannot keep pace with the amount of new financing required in Colombia right now however. Part of the remaining need was addressed using IPOs. "Last year there was the first IPO in Colombia by a foreign company and there were five total IPOs in the course of the year. Until last year, we'd only had around seven or eight in the country's history," comments one lawyer. A colleague agrees, saying, "IPO's are becoming more common, especially for mid-size or second-tier firms, and that's largely because of the pension funds' ability to invest."

"There's also been a big trend in the development of new financial instruments in Colombia this year," notes a partner. "Things that are common in more sophisticated jurisdictions are just starting to get popular in Colombia – things like options and derivatives. The market isn't deep, but it's there."

The MILA (Mercados Integrados LatinoAmericanos) stock exchange has also been a source of work and investment this year. The so-called 'Andean exchange' is a combined market for Chile, Colombia and Peru, with Mexico also set to join. Many attorneys report that it is very exciting, but that it needs time to find its footing: "The MILA market has been very successful as a concept, but maybe a little less so in practice," reports one lawyer. "What we're seeing is a lot of brokerage houses coming into Colombia, going into Peru, and wanting to take the best of each market. The market needs time to mature to become truly successful."

Colombia's drawbacks include the fact that there are still some security risks, especially outside of the major cities, interest rates are currently quite high to fight the looming spectre of runaway inflation and illicit trades (especially in mining) are still operated by guerrilla and paramilitary groups. There is also a nearly universal belief that Colombia's level of direct investment dwarfs its capabilities in terms of infrastructure. Massive government efforts and project finance transactions are expected in coming years to address sub-par roads, ports, sanitation, airports, and more, but much of the work is in the planning phase. The famed Ruta del Sol, one of Colombia's biggest recent infrastructure projects, has also already been slowed by a criminal investigation stemming from allegations of corruption.

The news in Colombia is certainly good, but not perfect. The legal market is well established, but also small considering the number of projects being planned in the country right now. However, the pension funds and many Colombian companies are flush with cash due to the country’s conservative regulatory structure. Financial firms report being busier than ever this year, with no signs on the horizon that the situation will change in the near future.

MAJOR LEGISLATION CHANGES

US – Colombia Trade Promotion
Agreement
In effect as of May 2012