Q-1: Mr. Elsztain, could you give us a brief recap of the history of IRSA, providing us with some details on the organization structure?
A-1: IRSA is a company that is 50 years old. We took control of it in 1991. At the time we bought it, it only had assets for 120.000 dollars. It was a short company that was lifted with a full purpose of investing in real state. The big advantage of acquiring IRSA was to invest in something that had been approved by the stock markets. So we could immediately capitalize it in 1991. At that time, Cavallo implemented the convertibility plan. So 1991 was a very special year for Argentina. We started to invest aggressively in property building. The strategy of the company had been very steady for the whole decade. Our goal was to invest in different sectors of real state. In 1995 we expanded our operations to other Latin American countries. We started with office buildings. Then, we expanded on the building of departments and condominiums. Afterwards, we took control of a shopping center company. We also entered into the hotel business with the acquirement of three five star hotels. IRSA also acquired the National Mortgage Bank. Other sector that is important for us is related to the new economy like Alto City that is the company that provides different services to us. I could say that in the first half of the decade the company grew with the help of the capital market. We invited our shareholders to invest in the real state. IRSA has a very conservative capitalization strategy that maybe was the reason why we could perform with satisfying results during this recession period.
Q-2: How do you feel, referring to IRSA as a mega holding?
A-2: IRSA is like a baby for me because I have seen the company growing. We launched this business together with Mr. Soros to take advantage of the high returns of real state in this region. The acquirement of buildings was giving us yields of 17, 18 and even 20%. This business was very attractive for us because we could buy buildings below their cost of construction. Even though this economy was passing through a stable period in the last ten years, the values of real state have increased a lot. So our strategy was to buy the best pieces of land of the city. Perhaps is the huge development of the company that makes it look like a mega holding. The businesses of this holding are all related to the same line of business: real state and finance. Is a very simple business.
Q-3: A particular quality of IRSA is, that it is trading its actions at the NYSE and Buenos Aires Stock Exchanges.
A-3: IRSA started to negotiate its actions in New York when the company received the third capital increase. We began to trade in the markets in 1991. In 1993, we had a profit of 65 million dollars. In 1994, we raised to 120 million dollars of equity. At that time, the investment bankers suggested us to have a full trade at New York Stock market. So we began to do all what was necessary to get the approval for this business. We began to negotiate our actions at Buenos Aires Stock Exchange after we bought Alto Palermo Shopping Center. IRSA began to operate in the NASDAQ list of companies. If a company can negotiate its actions in two different stock markets, it has more possibilities to provide liquidity and to access to wider markets.
Q-4: Last year was very difficult for Argentina and for many companies that are operating here. How did IRSA develop in this period?
A-4: The Argentinean market suffered a big corrosion in the last few months. We kept the position of Banco Hipotecario at the market value. So that is one of our losses during the last six months. The decrease of sales at the shopping centers is real. The emerging economies had a very good time during the first half of the nineties but they got infected immediately after the recession. Argentina had a very strong recovery under the leadership of Cavallo in 1995. Afterwards, the Russian financial crisis and the devaluation of the real had been very tough for our market. The last three years had also been very difficult for the capital market. The combinations of low prices in our commodities, a very strong dollar, the Brazilian devaluation and a political bad situation were lethal.
For the first time, we had an increase of 20% in our sales during the last weekend. That is good news.
Q-5: Do you think that the designation of Cavallo has something to do with it?
A-5: I do not know. This is the fifth time that I answer to this question today. He will put taxes on some imported products. I think that Cavallo changed people’s moods. De la Rúa made a good decision when he brought Cavallo into the Ministry of Economy. This is the first time in the last thirty months that we have an increase on our sales.
Q-6: IRSA invested last year as well in the telecommunication sector?
A-6: We did an increase of capital for the telecommunication sector but we are much more aggressive in the businesses that are related to our own operations: shopping centers and office buildings. IRSA is interested in all the Internet businesses related to the agricultural sector. We are connected with a farm company that is Cresud. Cresud bought Future and Options, which is the information provider of the agricultural business. The telecommunication sector is for IRSA the vehicle to provide communications to our own group. IRSA knows that this business is growing very fast. We also learnt from the developed countries that they had been a source of profits for all the real state companies because they provide a better access to communications. We did not start a big development since 1998 when we developed the Abasto Project. IRSA is very proud of this shopping center because this is the most important development that we have done. This is a shopping with a cultural center and a museum for kids. The recession decreased our economic growth and also our access to the capital market. We continued with the business of collecting the rent but we slowed down with the development of projects. This is a very conscious way to succeed during a very hard period of time.
Regarding our activities on the field of Internet, we launched Alto City together with Telefonica. We brought all our experience in the retail commerce. This had been a very successful project. About the performance of Line Invest I would say that I do not think that this will be a profitable company. There is too much competition in the line. That is why we decided to keep our business of information providers throughout Alto City.
Q-7: What can you tell us about Red Alternativa?
A-7: The main business of Red Alternativa is to provide communication services to the buildings that IRSA owns. The accesses to the telephone companies are now being much more competitive. I think that this sector is collapsing much faster than we had expected. This is a good competition for Argentina but we prefer to take advantage of the building of properties rather than provide communication services.
| Q-8: Can you elaborate then more on the ongoing and planned projects within your core business, as for instance the Project Rosario, Project Santa María del Plata and Project Puerto Retiro?
A-8: We bought the best piece of property in Rosario. We are associated with the most important supermarkets and with National Amusement that is a cinema complex. Rosario is the third important city of Argentina. It is incredible that this city does not have a shopping center. This is the reason why we think that we have chosen the best location. The difficult conditions of the economy during the last years made us think about not continuing with this project. Anyway, the government will succeed this crisis with the decisions they have made in the last ten days. The entire crisis gives us a chance to study the project that we are developing and to negotiate better conditions of structure. We started the first stage of the development but it was delayed in the last six months. We want to build shopping centers in different Argentinean regions. The project of Santa Maria del Plata has 70 hectares and will be placed in the best piece of property of Buenos Aires. It will be in fifteen minutes walk from here. This is near Puerto Madero. It has a huge potential of construction all around 750.000 meters. We will hopefully start building this project in a month from now. We need a final approval. The Puerto Retiro project is based on the developing of towers and a financial center. This is the major development. We are talking with the city authorities to get their approval. This is a very good place next to the Catalinas area. This is the best location for offices because it is placed in front of the river. I think that Buenos Aires will be the financial center for Latin America because all the headquarters of the multinational companies will choose it as the most attractive option to settle down.
Q-9: You are present as well in other Latin American countries, here we can point out your activities in Brazil. Are you planning to extend those activities to other countries?
A-9: We were concentrated in Argentina during the last year. We sold our position in Venezuela. The position of our portfolio in Venezuela increased the risk for our investors. IRSA has a very interesting investment in Brazil. Brazil is the biggest economy of the region. We kept it because we are really satisfied with the way businesses are developed there. We thought that it was better for us to concentrate in the Mercosur than in the whole region. I do not think that we will be growing outside Argentina under these market conditions. IRSA is the biggest real state company of Latin America. Other real state companies of the region proposed us to merge or to exchange shares. This is the kind of transaction that will give us the opportunity to continue growing in Latin America.
Q-10: Do you see the opportunity to enter new segments in Argentina?
A-10: We are covering the best segments of the real state business in Argentina. We cover the office sector, the shopping centres and the hotels. I do not see any other sectors where we may approach.
Q-11: Tourism may be one new opportunity. Why not expanding in a sector, which shows promising growth possibilities in the near future?
A-11: Tourism is a very interesting sector. We are not experts in the hotel business. We do not manage the operation of these three hotels directly. We hire professional management that gives us a very good return. We ran directly the Intercontinental Hotel. We also own the Libertador Hotel that it is run by Sheraton. The Alvear Palace Hotel runs the Llao Llao in Bariloche.
Q-12: Do you consider joining with new partners or investors?
A-12: IRSA is an open company. We have all type of investors. Goldman Sachs is our partner in part of the properties we have bought and also as a private equity investor. They are also our partners in Alto Palermo Shopping Centres. J.P. Morgan is another investor of IRSA through Peabody. IRSA is growing because we like to find strong shareholders for every new business we are developing. We have a very strong support by all our shareholders. If there is a good opportunity, we will join to new partners.
Q-13: As you know our readers are businessmen and top executives. What is your final message to all this potential investors?
A-13: De la Rúa had made a very good decision when he asked Cavallo to join the government. When Cavallo took control of the economy in 1991, Argentina was in the middle of an economic chaos. We had to face a high inflation period and we also did not have any reserves in the Central Bank. The conditions of the Argentinean economy are a little better today. I think that Cavallo is a very professional man. Even though the situation is tough, he will do his best as well as he did in the beginning of the nineties. In 1991, we became with a project to an emerging country that was in the middle of an economic chaos. So we had a lot of risks to face. We could raise almost one billion dollars in equity. This example shows that when someone has a clear strategy for the country, the investor’s support is really strong. Today our company has the best assets in the country. We are trading at 1,50 dollars. Cavallo is a blessing for us. He would not accept the challenge if he had thought that he could fail. The year 2001 will be as good as 1991.
Argentina has proven the convertibility plan for ten years. It is true that this is an inflexible system but when the speculation takes place we can prove how strong the system is. This is a very good time to invest in Argentina. When Cavallo said in 1991 that he had a twenty years program for the Argentinean growth, he did not think that he would have the support that he is having now. He has the support of President De la Rúa and the PJ party. This is something that we have not seen for many years. I am essentially an optimistic. Argentina is now a country with a clear leadership. This is what we needed for so much time.
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