You are Natalia Cifuentes, CFO of Mecanizados Orvalle, a Colombian maker of precision metal-mechanical components. A distributor in Córdoba, Argentina, is offering a three-year contract with a better margin than any of your current customers. On Monday 11 January 2027 you have to take the structure for the first quarter to the risk committee.
The situation
Orvalle has its plant in a free-trade zone in south-western Colombia, 325 employees and sales of about USD 12 million a year, nearly all to Colombian assemblers and to customers in Ecuador, Peru and Chile, always in dollars. The plant runs with 22% idle capacity. The Córdoba offer is 1,500 tonnes a year in quarterly lots of 375 tonnes, at USD 2.50 a kilo. A kilo costs USD 1.80 to make, so the full lot leaves USD 262,500 of margin a quarter. The company has USD 500,000 in cash.
The buyer's country is another story. In Argentina inflation is above 140% a year, the peso loses value month after month and the central bank's reserves are falling. Insuring against a default on its sovereign debt, the cover finance people call a CDS, costs 2,000 basis points a year, against 180 for Colombia and 75 for Chile.
Each quarter the committee will review three numbers: what share is invoiced in dollars, with the rest in pesos at the exchange rate on the invoice date; what share of the pesos is hedged with the bank, which charges about 1.2% of the amount covered even if the peso does not move; and how much of the lot is committed, from 10% to all of it. In December the commercial director, Hernán Zuluaga, closed a draft with the client's purchasing manager, Ricardo Ferreyra: half in dollars, 30% of the pesos hedged and 75% of the lot.
Nobody in the company is happy with that draft. Zuluaga wants to go further: "The client earns in pesos; if we demand dollars, he'll buy from someone else." The treasurer, Marcela Ríos, thinks the opposite: "A peso invoice can be devalued between shipment and collection; a dollar invoice can't." And the risk analyst, Andrés Peña, is wary of committing so much volume to a client Orvalle has never invoiced. Ferreyra calls tomorrow at ten to ask whether the draft stands.