April 3, 2020 / 4:26 PM / 3 months ago

Latam bankers prepare for dire quarter as deal flow dries up with coronavirus outbreak

    By Tatiana Bautzer and Carolina Mandl
    SAO PAULO, April 3 (Reuters) - Bankers are preparing for a
dire second quarter in Latin America as M&A deals and share
offerings grind to a halt with the drastic drop in economic
activity during the COVID-19 pandemic.
    Deal volume fell 41% in Latin America in the first quarter
compared with a year earlier, to $9.3 billion. In Brazil, which
began ordering residents to stay at home only by the end of
March, deal volume was up 17% in the first quarter, to $6.7
    So far, no announced large deal in the region has been
canceled. The largest in the quarter, the $825 million
acquisition of Takeda Pharmaceutical operations in the
region by Brazilian pharmaceutical company Hypera has
received financing this week and is expected to close. 
    The Boeing-Embraer deal is also expected
to go through after regulatory approval, according to bankers
working on it. 
    But bankers say deal announcements are not expected during
the pandemic, as parties prefer to set the terms, including
price and payment schedule, once there is a clearer perspective
of when economic activity can resume.
    "We are still working on deals, but new announcements will
depend on a clearer perspective of when the world can expect to
control the pandemic," said Alessandro Farkuh, investment
banking head at Bradesco BBI.
    Amid the turmoil, setting prices for assets has been a
challenge for bankers. 
    "There will likely be a valuation revision for ongoing
deals. We know that the equities market is not a good proxy now,
but how to calculate future cash flows?," said Daniel Damiani, a
partner at Sao Paulo-based M&A boutique JK Capital.
   When a time frame for resuming economic activity becomes
clearer, deal flow may resume, bankers said. 
   "Many private equity firms have a lot of cash. So there may
be good deal opportunities for them, as prices are lower and the
exchange rate is favorable," said Hans Lin, head of Brazil
investment banking at Bank of America.
    Companies more affected by the pandemic may be forced to
look for a deal, bankers said.
    Still, companies will face challenges getting bank loans or
other forms of debt to finance transactions. That could make
share swaps the favored form of currency in any near-term
acquisitions, said a senior banker at one of Brazil's biggest
lenders, who requested anonymity to discuss some of his clients'
    The pandemic of COVID-19 - the potentially lethal
respiratory disease caused by the new coronavirus - and the
ensuing retreat from risk has also dampened foreign investors'
appetite for Brazilian assets, considering challenges to growth
and sharp exchange rate fluctuations, this banker added.    
    Debt restructuring, an area some banks tend to shift
resources to in tough times, may not pick up immediately, as
local banks have been ordered to loosen terms on credit lines
and agree to grace periods.
    Eventual candidates for debt overhauls include industries
such as tourism, oil and gas and all parts of the auto supply
chain, restructuring specialists said.
    Less clear is the fate of airlines, under severe pressure
but set to get a helping hand from Brazilian state development
bank BNDES.  
    Within Brazil's vast agribusiness sector, sugar and ethanol
producers are particularly vulnerable to the rout in fuel prices
caused by an oil price war between Saudi Arabia and Russia.
    "The ethanol industry was already under pressure with a lot
of bankruptcies, and now ethanol prices do not cover the costs
any more", said Salvatore Milanese, founder of restructuring
firm Pantalica Partners.
    A bill going through Congress may allow all companies under
bankruptcy protection to renegotiate existing debt restructuring
agreements already approved by creditors, considering new
revenue levels due to the COVID-19 pandemic. The bill also eases
the conversion of debt into equity. 

    Below are the tables for M&A advisory in Brazil and Latin
    Brazil M&A League table
 Financial advisor  Deal value ($  Number of
                    million)       deals
 Bradesco           1,072          6
 Bank of America    825            1
 Itau Unibanco      774            8
 JPMorgan           648            1
 Morgan Stanley     519            2
 BNP Paribas        517            1
 Rotschild & Co     496            4
 Banco Safra        272            2
 Santander          212            1
 Prisma Capital     140            1
 Total              6,751          112
    Latam M&A Advisory League table   
 Financial         Deal value   Number of
 adviser           ($ million)  deals
 Bank of America   1,135        2
 Bradesco          1,072        6
 Itau Unibanco     1,011        12
 JPMorgan          648          1
 Morgan Stanley    519          2
 BNP Paribas       517          1
 Rothschild & Co   496          4
 UBS               350          1
 Santander         333          5
 Citi              310          2
 Total             9,241        204
 (Reporting by Tatiana Bautzer and Carolina Mandl; Editing by
Christian Plumb and Jonathan Oatis)
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