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When Carmen Moreno jogs by the Nezahualcoyotl open-air garbage dump in the working-class outskirts of Mexico City, she wears a surgical mask to avoid the stench. But that's where Carlos Slim, who vies with Warren Buffett as the world's second-richest man, smells money.
Slim, 67, acquired the landfill last year for an undisclosed amount and plans to spend US$150 million ($206 million) by 2010 to develop a shopping mall, two schools, a hospital and a park.
The project, in a sea of concrete featured in the Denzel Washington film Man on Fire, is part of Slim's new push into real estate and construction, which he is betting will be profitable as Mexico's economy grows.
Investors aren't so sure. After making his fortune from telecommunications, Slim turned to construction two years ago.
His infrastructure company, Impulsora del Desarrollo y el Empleo en America Latin (Ideal), based in Mexico City, has lagged behind the country's benchmark stock index this year.
"Though Slim is a renowned businessman, experience matters in the field of infrastructure," said Mauricio Brocado, head of research at Actinver in Mexico City. "There's a lot of expectation, but little is concrete."
Investors see more dependable profits coming from conventional projects, mainly toll roads, than from gentrifying a dump.
Ideal obtained two government highway concessions after its September 2005 initial public offering - one that month and one in December 2005. It hasn't won any toll-road auctions since then.
Shares in Mexico City-based Ideal are flat this year, compared with a 12 per cent gain in the Mexican benchmark Bolsa index. The company's first-quarter net income fell 71 per cent to 129.7 million pesos ($16.54 million) after two consecutive quarterly losses.
That's a turnabout since its IPO. In the first four months of trading, Ideal shares doubled. Because of that initial euphoria, the stock is up 136 per cent since the IPO, more than the 95 per cent increase in the Bolsa index.
Slim's advisers say their infrastructure plan will eventually bear fruit. "These are long-term projects," said Jaime Chico Pardo, 57, who was named Ideal co-chairman in September after serving as the chief executive of Telefonos de Mexico for almost 12 years. "One cannot judge its performance by its quarterly statements, especially because it's a newly created company."
The son of Lebanese immigrants to Mexico, Slim amassed a US$53.1 billion fortune by building Latin America's largest telecommunications carriers, according to Forbes magazine, slipping past Buffett, worth US$52.4 billion.
When Forbes published its 2006 list of billionaires in March, Slim ranked third behind Buffett and Microsoft's Bill Gates.
Unlike Gates and Buffett, who have each pledged tens of billions of dollars to philanthropy, Slim has put just US$4 billion into his foundations. In his last public appearance on March 12, Slim said business ventures such as Ideal could help fight poverty more efficiently than charity.
In March Ideal valued its five Mexican toll roads and a water-treatment plant contract at about US$930 million.
Its US$45 million of real estate assets include the dump, three hospitals, four university campuses and land it declined to identify. Ideal also owned half of an electronic toll-payment company and a software company, assets valued at US$140 million.
On May 4, Ideal said it won contracts to build two hydroelectric power plants in Panama for an undisclosed amount, its first project outside Mexico. Ideal hired Carso Infraestructura y Construccion, also controlled by Slim, to build the plants for about US$250 million.
Since the start of last year, Ideal has won three infrastructure contracts. That's fewer than Slim's biggest local construction competitor, Mexico City-based Empresas ICA. During the same period, ICA obtained 18 Mexican projects valued at US$1.09 billion, including airports, toll roads, hospitals and oil platforms.
"Slim's economic and political calibre has raised great expectations about Ideal's competitive advantages and its ability to win a large number of projects, but so far this has not been the case," Cecilia del Castillo, a Citigroup Global Markets analyst, wrote in a March report.
Ideal also faces competition from international companies such as Madrid-based Acciona and Barcelona-based Fomento de Construcciones y Contratas for the biggest and most profitable contracts in Mexico.
Next, the Mexican Government plans to sell US$25 billion of toll roads it took over from private companies following the December 1994 currency devaluation.
Slim teamed up with Macquarie Infrastructure Group of Australia to bid for the first of four packages of highways this year.
Some investors believe Ideal will win part of those contracts, which could trigger gains in the stock.
"Ideal will do fine," said Christopher Palmer, who helps manage US$3.5 billion in emerging-market equities for Gartmore Investment Management in London, including Ideal stock.
"They're very good at structuring finance."
Still, shareholders complain there's not enough information available about Slim's construction ventures. Ideal is still building a website. The company hasn't sent statements to the Mexican Stock Exchange to inform shareholders of some projects, including the Nezahualcoyotl development, the water-treatment plant and a partnership with Mexican hospital chain Star Medica.
Only one analyst, Citigroup's del Castillo, covers Ideal.
"Everyone is willing to pay a premium for Carlos Slim's execution, but when I looked at the stock a few months ago, it was expensive and there was no coverage, so I left it at that," said Gilberto Nagai, who helps manage US$26 billion at ABN Amro Asset Management in Sao Paulo.
Slim is betting on one of the poorest zones surrounding Mexico City at Nezahualcoyotl. Workers there earn an average 37,426 pesos ($4776) annually, 70 per cent less than in Mexico City.
Nezahualcoyotl Mayor Victor Bautista said the development could help fight crime by creating 3500 jobs and providing youths with leisure activities.
"Public security is my biggest problem," Bautista said.
Street dealers sold mostly cocaine and methamphetamine, he said.
The development could take 12 years to yield a return, compared with about eight years in a typical real estate investment, said Heberto Guzman, partner at Gucahe Corporacion Inmobiliaria Integral, which originally designed the project.
"They're trying to develop a poor area that isn't very friendly," said Carlos Hermosillo, an analyst at Vector Casa de Bolsa, a brokerage in Mexico City. "I don't think it's a problem for Ideal's stock as long as they keep on working on bigger projects."
While the bet on this landfill may seem risky, a decade of low inflation and growing access to credit is prompting a boom of consumer spending across Mexico, even in working-class enclaves like Nezahualcoyotl, a city of 1.3 million.
Grupo Elektra, the country's largest consumer electronics retailer, sells 2000 flat-screen televisions a year at its store in the area, making it the third-best-selling outlet in the metropolitan area, said regional manager Oscar Arias Montiel.
"The people here work hard, they want to move up," said Guzman, whose Guache owns a third of the landfill.
Slim's mall would have 178 stores, including Inditex's Zara fashion chain and Slim's Grupo Sanborns and the Mexican unit of Sears Holdings, said Manuel Martin, who manages mall rental contracts for Slim's companies. Ideal has verbal agreements to rent about 90 per cent of the retail locations.
Wal-Mart de Mexico, a unit of Wal-Mart Stores, would set up shop next door, Ideal said.
Ideal would also collect rent from the university, the hospital and the school that would be built around the mall, said Adrian Pandal, the company's project manager.
The park, the first in Nezahualcoyotl, would include 34 soccer fields, 12 tennis, basketball and volleyball courts, a baseball court and a gym with a pool, said Ideal.
"I just hope they don't charge to use the park," said Moreno, a 40-year-old homemaker who works out daily at the jogging track by the Nezahualcoyotl dump. "Not everyone would be able to afford it."
Bautista, the mayor, said access would be free.
-BLOOMBERG
