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  • Chinese Firms Scour Latin America for Bargains After Slump
    Bloomberg

    Chinese Firms Scour Latin America for Bargains After Slump

    (Bloomberg) -- Chinese firms and Canadian pension funds are on the prowl in Latin America, looking to scoop up assets at rock-bottom prices and make further inroads to the region’s biggest industries following the worst economic downturn in more than a century.Foreign investors are eyeing sectors ranging from Brazilian health care to Argentine power transmission projects. Asian companies, many with links to the Chinese government, top the list, ready to expand their presence in the backyard of the U.S., said Anna Mello, a partner at Trench Rossi Watanabe, a Brazilian law firm that works in cooperation with Baker McKenzie LLP on mergers and acquisitions in the region.“Chinese economic influence in Latin America is likely to gain strength in the post-pandemic era,” she said. “The U.S. will probably focus more on Latin America investments in 2021 and will seek to counter China’s influence in the Western Hemisphere.”The renewed interest comes as deals trend toward a 15-year low this year after the outbreak led to an historic economic drop, causing governments to borrow heavily and sending firms across the region into default. Countries and corporations are likely to sell assets, in some cases at reduced prices, to improve liquidity -- giving foreign firms a chance to spend the cash they’ve been stockpiling.“These long-term investors -- Canadian pension groups, U.S. private equity funds, institutional players -- they have large sums of capital,” said Mauricio Saldarriaga, managing partner at Inverlink SA, a Colombian investment bank. “And they can find opportunities at cheaper prices than they saw 12 months ago.”More DealsCovid-19 took a heavy toll on Latin America with regional gross domestic product expected to contract by more than 7%, the most since reliable record keeping began more than a century ago. The downturn pushed companies and governments into default, including Argentina and the region’s largest airlines.Mergers and acquisitions across Latin America and the Caribbean dropped to around $90 billion this year, a 40% fall from 2019, according to data compiled by Bloomberg.Yet, foreign firms made inroads, with companies like State Grid Corp. of China recently inking a deal to pay $3 billion for an electricity grid in Chile, and China Harbor Engineering Co. buying assets in Colombia. Canada’s pension funds, like the Canada Pension Plan Investment Board and Caisse de depot et placement du Quebec, have also increased investments in the region.Read more: After Trump taunts Colombia, China pours billions into countryMore deals are on the horizon with investors looking to deploy cash in infrastructure projects, oil and gas companies and renewable energy across Latin America, as well as mines in Colombia and Peru, Mello said. Brazilian oil company Petrobras SA said Friday it received bids for divestment of an oil and gas cluster.One country where deals may be slower to materialize is Mexico, where political uncertainty under populist President Andres Manuel Lopez Obrador has pushed foreign firms to change strategies.Some are looking to reinvest elsewhere, or even pull out in search of more stable countries, said Gavin Strong, a Mexico City-based analyst at Control Risks, a consultancy.“We’ve had two types of conversations: One has been with investors looking to get out of the energy sector and looking at infrastructure,” he said. “The other is companies that are considering leaving Mexico and investing in South America.”(Updates deal total in 7th paragraph, adds Petrobras in 9th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • ECB Urged to Extend Bank Dividend Ban Six Months by Watchdog
    Bloomberg

    ECB Urged to Extend Bank Dividend Ban Six Months by Watchdog

    (Bloomberg) -- Europe should extend its de-facto ban on bank dividends by six months, a top official at the European Central Bank’s supervisory arm said, casting a shadow over investors’ hopes for a return to payouts early next year.The comments come as big banks across Europe are facing fraught times, with regulators at the ECB and the Bank of England preparing to decide in coming weeks whether and how to lift their recommendations on payouts. Shareholder dividends were effectively frozen in March in a trade-off for unprecedented regulatory relief and government loan guarantees, yet bankers have subsequently slammed them as doing more harm than good.Speaking in an interview ahead of the long-awaited decision this month, Ed Sibley, a member of the ECB’s supervisory board, said continued uncertainty, a need to preserve capital for lending and reputational issues for banks all speak in favor of extending the regulator’s existing recommendation. The question is how to implement it in practice, because the ECB doesn’t have the powers to enforce a blanket ban over mounting objection by lenders.“Overall, we would be better if we were to hold off for another six months,” said Sibley, who is also a deputy governor at the Central Bank of Ireland. “Whether we can practically do that is a real challenge.”European banking stocks pared gains on Friday, with the 22-member Euro Stoxx Banks Index up 1.2% as of 5:28 p.m. in Frankfurt after earlier rising 2%. The index has fallen 19% this year with Banco de Sabadell SA, ABN Amro Bank NV and Societe Generale SA among the biggest losers.The BOE and ECB have said they will announce their decisions on dividends by the end of the year. Sibley didn’t say how many supervisory board members share his views. “We’ve been having a really good discussion about it,” he said. “It’s not something we’ve been going at in a blasé kind of way.”Regulators will get key input on Thursday when the ECB will release its economic projections, alongside its latest monetary policy decision. The BOE publishes its Financial Stability Report the next day.“That will factor into our thinking, but there are lots of other things we need to think about as well,” said Sibley. “There are significant weaknesses in lots of banks’ ability to demonstrate to us that their planning is effective from a capital management perspective.”Legal BasisThe ECB recommended earlier this year that banks not pay dividends or buy back shares at least through the end of 2020. The central bank can’t order an industry-wide ban, yet big banks fell in line after chief watchdog Andrea Enria said he could impose legally-binding measures on an individual basis.As the pandemic progressed and lenders largely managed to deal with the fallout, some of the banks hardest-hit by the dividend suspension have become more vocal in demanding a return to payouts. Societe Generale Chairman Lorenzo Bini-Smaghi and his counterpart at Banco Santander SA, Ana Botin, have warned that the ban could backfire by making loans more expensive and even cutting banks off from funds provided by investors.Sibley acknowledged that banks need to be able to pay dividends to access capital markets. Still, “some of the lobbying is a little tone deaf, especially with the level of fiscal and regulatory support that has gone into the economy,” he said.Many banks have seen their share prices slump this year, especially when compared with the U.S., where the Federal Reserve only demanded a cap on capital returns.‘Middle’ Ground“We didn’t ban dividends, we expressed our view on them and I think that’s as far as we can go this time,” Sibley said. “You have to think about how would we implement something that is practical and will stand some degree of challenge. I think that’s where we’re having the debate.”Several watchdogs and senior monetary policy officials favor allowing strong banks to resume payouts early next year, according to people familiar with the matter. ECB supervisory board members have discussed whether they can lift the ban just for the best-capitalized lenders without risking legal challenges from weaker ones, said the people, who asked not to be named because the deliberations are private. Capping dividends, potentially at 25% of a bank’s annual profit, is another option that’s been discussed, the people said.A spokeswoman for the ECB declined to comment on those discussions.Sibley said that taking such a case-by-case approach is complicated because it encourages banks to prioritize investors’ short-term interests over their longer-term financial health. It also risks disclosing non-public information about how the ECB views the governance failings of certain lenders, he said.“That leads to another collective action problem or system-wide problem versus the individual incentive,” he said. “Overall, I think we’d be better off waiting. Practically, I don’t know how that’s going to be achievable so we’re going to have to come up with something that sits in the middle.”(Updates with lobbying in 10th paragraph, ECB deliberations in 14th)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.