Billionaire Eurnekian Investing $1.2 Billion in Chip Plant

Argentine businessman Eduardo Eurnekian is investing $1.2 billion in a chip plant south of Buenos Aires to tap a growing market in Latin America for credit cards, mobile phones and electronic identification.

The manufacturer, known as Unitec Blue, began production in February after an initial investment of $300 million with an output capacity of 1.2 billion chips a year, which will double by the end of 2016, according to its president Matias Gainza Eurnekian, Eduardo Eurnekian’s nephew.

Eurnekian, who is worth at least $1.3 billion, is expanding in Argentina at a time when currency controls, 24 percent annual inflation and import restrictions are deterring investment there. In the World Economic Forum’s global competitiveness ranking, the country slipped nine spots to number 94 of 144 economies for the 2012-2013 period. Earlier this year, Eurnekian’s Corporacion America holding company bought 81 percent of Argentine oil company Cia. General de Combustibles for $200 million.

“Corporacion America is the most aggressive investor in the country right now,” Gainza Eurnekian, 28, said during a May 23 tour of the 10,000 square meter (108,000 square feet) plant in Chascomus, 120 kilometers (75 miles) from the capital. “This is a long-term project so we don’t let current politics affect our strategy. We like to invest in Argentina because we’re Argentine.”

Foreign Investment

Vale SA, the world’s third-most valuable miner, abandoned a $6 billion potash project in Argentina’s Mendoza province in March after it failed to secure tax breaks and attract partners, saying the cost of the project had almost doubled. Brazilian meat producer Marfrig Alimentos SA plans to close two beef plants it operates in Argentina as part of a strategy to cut costs, chief executive officer Sergio Rial said May 14.

Argentina, Latin America’s third-largest economy, was fifth in foreign direct investment in the region last year, trailing smaller economies such as Chile and Colombia, according to the United Nations.

Corporacion America operates 50 airports worldwide through Aeropuertos Argentina 2000. The holding also owns the Fin del Mundo winery in western Argentina, a construction company, and a postal service and bank in Armenia, where Eurnekian’s family originated.

Through CGC, the group has stakes in gas pipelines and oil fields in Argentina and Venezuela. Eurnekian, 80, is also working to partner with state-run YPF SA to develop shale deposits at Vaca Muerta, which may hold the world’s second-largest shale oil deposits after the U.S.

Corporacion America has annual sales of about $2 billion, according to Carolina Barros, a company spokeswoman.

Regional Growth

Latin America and the Caribbean is forecast to expand 3.4 percent this year, compared with growth of 0.3 percent in Europe and 1.9 percent in the U.S., according to the International Monetary Fund. Demand for SIM cards for mobile phones, which Unitec Blue produces, is surging in the region as 81 percent of mobile phone subscriptions in Latin America are prepaid, according to the World Bank.

Unitec Blue is already manufacturing credit cards for Visa Inc. and Mastercard Inc. in Argentina and neighboring countries, while providing transport cards for regional governments in Brazil, according to Gainza Eurnekian. The company is providing chips and lamination for the SUBE transport card for the Buenos Aires metro, rail and bus network and is bidding for similar contracts in Brazil, he said.

The plant, which employs 155 people and took 10 months to build, will also produce solar energy panels and LED technology, a semiconductor light source. The project is being financed with Corporacion America’s cash.

Borrowing Costs

Investors demand an average 11 percent yield for Argentine companies to borrow abroad in the bond market, more than double the 5.2 percent average for companies in emerging markets, according to JPMorgan Chase & Co.’s CEMBI index. That’s the highest in emerging markets after Venezuela and Oman.

“We’re financing it all ourselves, because the time it took us to build the plant, is how long it would have taken to negotiate a loan with banks,” Gainza Eurnekian said. “This is a high-risk project with a large investment and a need for quick returns to continue growing.”

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