June 15, 2012 1:09 pm by John Paul Rathbone
Most other investors might be selling assets and hoarding cash, but not Carlos Slim. The Mexican telecoms tycoon and world’s richest man is on a shopping spree. This week alone he has bought a 21 per cent stake in Telekom Austria, while simultaneously pursuing a bigger stake in Dutch telecoms operator KPN. He’s also emerged as the surprise acquirer of an 8.4 per cent stake in Argentine oil company YPF. Using market prices, those two deals alone are worth around $1.3bn. What’s going on?
The Mexican billionaire has always been an astute buyer of distressed assets: good timing is one of the trademarks of his value-based investment philosophy. It drew him to invest in Brazil in 2002, when fears of a socialist government under Lúiz Inacio Lula da Silva crushed market prices. It also led him to invest in Argentine telecoms in 2001, shortly after the country defaulted. Now he’s doing exactly the same again – only in different arenas.
In Europe, the eurozone crisis has trashed asset prices – so that’s a chance for Slim to swoop. In Argentina, meanwhile, an eccentric approach to economic policy-making has trashed YPF’s share price. Furthermore, Slim has apparently picked up his YPF stake from banks that had been pledged the shares as collateral on now defaulted loans. Banks, generally, don’t like hanging onto such stakes for longer than they possibly can – which also makes them more-than-willing sellers, and often at good prices too.
Although these are risky bets, which may or may not provide a return, the fact they are hard assets, available at a good price and in areas he already understands, provides the margin of safety that every value investor likes to have. Warren Buffet, another billionaire value investor, would surely approve.
In Europe, there is also the prospect of growth – from the emerging market operations of Telekom Austraia. And as for Argentina, there may be political synergies to take into account. Slim’s Argentine mobile telecoms operation, Claro, a unit of América Móvil, accounts for the third of the national market, with sales of $2.6bn last year. That’s a position worth protecting – even if it means stumping up for YPF to keep Buenos Aires sweet.
Should others take Slim’s moves as a buy signal? Not necessarily. With a personal net worth of $67bn, Slim can ride out the ups and downs these investments will likely experience over the next few years, in a way most other investors cannot. Slim is also suffering at home. Competition is ratcheting up on both his mobile and fixed line telecom companies. As an asset allocator par excellence, it therefore makes strategic sense for Slim to switch into assets elsewhere that have a chance of a better return.
Two hundred years ago, the financier Nathan Rothschild, who made a fortune by trading ahead of the competition on early news of Wellington’s victory at Waterloo, coined the investment adage: “buy on the canon, sell on the trumpets”. As there are a lot of metaphorical financial canons firing at the moment, that also means the possibility for a lot of deals – at least for Slim, if not for everyone else.
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