| Some are the
top corporations in the country.
"High profits
exist in under-capitalized or unknown markets"
Many investors
do not realize that money, like everything else in life, has a cost. We
all understand that car companies increase the price of new and best selling
models. We also understand that toy stores increase the price of popular
children's toys when the demand outweighs the supply at Christmas-time.
Money, or more correctly interest rates, works the same way. When sufficient
or excess capital is present in the economy, interest rates or the cost
of money goes down. When money is needed or in short supply, interest rates
or the cost of money goes up.
This is
the current situation in the Dominican Republic. The country is entering
into a growth phase and capital, especially dollars, is sought after. For
this reason, US dollar interest rates remain much higher than in the US.
The truth of the matter is, because of the new publicly traded capital
markets that have come about with the creation of the Stock Exchange, interest
rates have actually come down from five or six years ago. This is a natural
progression in a developing market. With that said, rates still remain
very attractive when compared to the current 4.5% money market rates or
bond rates in the US.
Generally
speaking, what is the future for the Dominican Republic?
All one has
to do is look at the new housing construction and perhaps more importantly,
the new infrastructure. The Government is actively developing new
highway systems and has recently completed an express tunnel running directly
through the capital of Santo Domingo. Plans are being discussed for a Monorail
system in the capital as well.
What do
these things indicate for the forward thinking investor? For me, it
points to a country moving ahead. Any country that is investing into its
infrastructure and moving ahead with pro-investment legislation is a country
worth adding to your investment list. Timing is everything and now is the
time! As the economy grows and as more investment enters into the
country, the opportunities at the ground floor will start to disappear.
Interest rates will come down eventually and capital will start shifting
to equities. For the moment, the capital markets are the place to focus.
Action Plan
for Investors:
 Take
advantage of the higher interest rates available right now in the money
markets. Whenever possible, try to lock in some higher yields with
3, 5 and 10 year bonds whenever possible (Dominican companies do not
like to issue long term debt, so finding longer term bonds can be difficult).
Look
into real estate as a long-term investment. A square meter selling for
1,000 pesos four years ago is now going for 5,000 or 6,000 pesos per square
meter today in some areas of the capital-Santo Domingo. In my opinion,
building construction going on today is just a tip on the iceberg.
Investment into up and coming developments and tertiary neighborhoods will
bring rewards later on. With just 16% of the tourists coming from the US,
you had better believe that opportunities exist in tourism and hotels once
more of that market is penetrated.
Get
ready for new equity or bond offerings as the government continues to privatize
the public sector and as more companies warm up to the idea of selling
shares to the public. Look for opportunities in Energy (electricity),
Banking, Telecommunications and Free Zone Manufacturing.
A Sample
of recent offerings in Pesos and US Dollars from the Stock Exchange &
Private Placement Markets:
| Issue Date |
Maturity |
Type |
Rate of
Interest |
Company |
Currency |
| 3/20/98 |
60 to 180
days |
Commercial
Paper |
16% |
Servinvest,Inc |
Peso |
| 11/19/98 |
60 to 180
days |
Commercial
Paper |
22 % |
Tokio Motors |
Peso |
| 11/27/98 |
60 to 180
days |
Commercial
Paper |
22% |
Helados Bon |
Peso |
|
90 to 180
days |
Commercial
Paper |
23% |
Reid &
Co. |
Peso |
|
3 to 5 years |
Bonds |
11.50% |
Hotel Embassy |
US $ |
|
90 to 180
days |
Commercial
Paper |
25% |
Consorcio
Moya-Jorge |
Peso |
|
