Corporate Expansion Extends

Acquisitive banks and corporates are shrugging off negative cross winds from global credit markets and 2007 appears on track to be another banner year for M&A. “We will continue to see a healthy environment for doing deals,” says Hugo Verdegaal, managing director and co-head of investment banking at Citi Latin America. “Companies continue to look at how they can grow their business, organically and through M&A.”

Acquisition finance is still abundant, particularly in the bank market, where pricing remains attractive and tenors are lengthening. And LatAm entities continue to look outside the region in sectors like commodities, where critical mass is king. But a modest correction is anticipated, if only a reduction in leveraged trades and a greater emphasis on valuation.
“At the margin, the volatility in the credit markets is bound to cause a difference at some point in time,” says Verdegaal. The banker is nonetheless upbeat overall about the LatAm outlook. “Structurally, the region has adjusted very strongly.”

Scotia Seals Chile
Bank Deal

Scotiabank is buying 79% of Banco del Desarrollo (BD) for $810 million, to form Chile’s sixth largest bank. Sellers are Sociedad de Inversiones Norte Sur, a Chilean investment firm that holds 39%, Credit Agricole with 24% and Intesa Sanpaolo which has 16%. Scotia is planning a public share offering and expects to acquire up to 100% of BD, which would be valued at $1.03 billion. Scotia president and CEO Rick Waugh says Chile has “scarce assets available for purchase.”

BD has assets of more than $5.1bn and the deal will increase Scotia’s Chile deposit market share to 5% from 2%, while almost tripling its branch network and enhancing its earnings stability, says Moody’s. Before the transaction, the agency says Scotia’s Chile franchise was weighted towards corporate banking and its earnings were low, on a risk-adjusted basis, due to a lack of business line diversification and poor efficiency. BD’s portfolio of loans to mid-sized companies and consumers will help diversify and make more granular the asset base, thereby improving earnings stability, adds the agency.

EnCana Exits Brazil
Canadian oil and gas company EnCana has agreed to sell its remaining interests in Brazil for about $165 million in cash. A 50-50 joint venture between Bharat Petroleum and electronics company Videocon Industries, both based in Mumbai, will buy out EnCana Brasil Petróleo, whose operations consist of 10 deepwater exploration blocks across four concessions. EnCana says the deal should net $75 million.

Meanwhile, Japan’s Marubeni Corporation has signed a deal with Korea’s SK Energy for the acquisition of a 10% interest in its $3.8 billion Peru LNG project. SK estimates the value of the sales and purchase agreement at $100 million and says the transaction reduces its investment in the Peruvian company by about $200 million.

América Móvil Makes Jamaica Acquisition
Mexico-based mobile phone giant América Móvil is planning to buy Jamaican cell phone company Oceanic Digital. A deal is apparently set to be concluded in the fourth quarter, pending regulatory approval. América Móvil has its work cut out given the dominance in Jamaica of Digicel and Cable & Wireless. Oceanic also operates in El Salvador and the Dominican Republic.

Meanwhile, Banco do Brasil, the state-run bank, is studying a takeover of Banco do Estado do Piaui, controlled by the government of the northeast state of Piaui. BB is also considering acquiring the state bank of Santa Catarina and Banco de Brasília.

Elsewhere, US private equity firm Brysam Global Partners took a 28% piece of Mexican financial services provider Ixe Grupo Financiero for $228 million. Ixe plans to use proceeds to finance expansion. LF