On 08 July 2009, Bancolombia S.A. (Bancolombia) announced that shareholders have authorized the company to issue 80 mn preferred shares, raising up to US$620 mn. This will strengthen the bank's capital base, providing a greater buffer if any increase in provisions becomes necessary and enabling it to expand its loan book when the Colombian economy recovers. However, considering the likely impact of the economic downturn in Colombia over our investment horizon…

Colombia’s real GDP growth fell from 7.5% in 2007 to just 3.2% during 2008, and the country’s central bank (the Banco de la República de Colombia, or Banrep) forecasts growth of just 1%-2% in 2009. Meanwhile, Barclays anticipates contraction of 1.1% in 2009 and growth of 3.8% in 2010. These downbeat forecasts reflect sluggish demand for the country’s exports, including oil and coal, amid the global economic recession....

Bancolombia S.A.’s (Bancolombia) 4Q 08 top-line exceeded our forecast, but the bottom-line fell short of our and market estimates. Considering the likely impact of the economic downturn in Colombia, as well as the weak lending outlook for Colombian banks, we expect to cut our estimates and target price when we revalue the company in our next full update report. Therefore, even though the target price derived in our last update report does not support a HOLD, we maintain…