JPMorgan has shown itself once again to be a key player in Latin American capital markets and amply deserves to be rated top in two categories – Best Investment Bank and Best M&A House.
Over the past year, the bank had one of the busiest and most diverse bond businesses; an equity operation helping generate many of the region’s major deals; key advisory roles in M&A for both the buy and sell side; and, a syndicated loans franchise as active as any could be in 2012.
The bank is also one of the few with broad geographic reach in each product area, placing it in a good position as investors and strategic buyers appear set to continue looking beyond Mexico and Brazil for opportunities.
In M&A, JPMorgan’s pan-regional strength and international reach has allowed it to capitalize on several of the region’s high profile transactions.
It has represented minority and majority buyers and sellers, both locals and foreigners, across a number of types of deals. And among the major themes that are set to continue this year are Europeans divesting, regional powers expanding, and US companies returning to the region.
“We have seen the comeback of the Americans,” says Nicolás Aguzín, chief executive of JPMorgan’s Latin America business until December, when he took over as head of the bank’s Asia operations. “We have seen a resurgence in US players interested in Latin America. Corporates in the US have a lot of cash, they are looking for growth, and Latin America is right next door.”
JPMorgan advised US chemicals producer Air Products in acquiring a 67% stake in Chilean industrial gas producer Indura for $884 million, announced in June. It also provided a bridge loan. The move expands Air Products’ Latin America presence in a high-growth market, and comes with a put option for the founding Briones family to sell the remaining interest, exercisable at fair market value in year four and five.
Towards the end of 2012, JPMorgan advised UnitedHealth in its $4.9 billion entry in to Brazil, buying 90% of Amil Participações. On the sell side, it handled AFP Cuprum’s $1.51 billion sale to Principal Financial.
“LatAm M&A has always had a cross-border component, and 2012 is no different,” says Moises Mainster, co-head of LatAm M&A.
More than 70% of the region’s deals had a cross-border component last year. Regional M&A volume was up over 15% year to date, Mainster said in October, compared to a global drop. Latin America accounted for 7% of global activity, compared to about 5% historically. Brazil, as is normal, accounted for the lion’s share of volume – although in 2012 it accounted for 35% lower than the more than 50% seen in years past.
Large deals should continue in 2013, Mainster says, as big deals are getting done as easily, if not more so than small deals. As of October, there had been more than 50 deals of $500 million or more, compared to 40 sized between $300 million and $500 million.
JPMorgan advised AB Inbev on the $20 billion purchase of the remaining 50% of Mexico’s Grupo Modelo.
Aguzín and Mainster say one major theme of 2012 – and one that will continue next year – has been the increasing role of regional players, often as Europeans institutions retrench.
The combination of Chile’s airline LAN and Brazil’s TAM was one of the most complex closed. The stock-for-stock exchange involved three jurisdictions (as US ADRs were involved) and created the largest airline by market cap in the world. JPMorgan advised LAN. Also in Chile, the $966 million merger of Embotelladora Andina and Embotelladoras Coca-Cola Polar is a domestic deal but one with international ramifications given the firms operate in neighbouring countries.
JPMorgan advised Grupo Sura on its purchase of ING’s pension assets in Latin America for $3.9 billion in cash and assumed debt, creating another regional power, which is expected to expand further in the region. Sura was considered the underdog to pick up the assets of the departing European, compared to well-known non-regional institutions that were among the bidders.
“European companies are starting to use Latin American M&A to raise funds at valuation levels that are a lot more attractive than if they were selling stock of the parent back in Europe,” says Mainster. “LatAm offers good valuations, and deals can get done and financed.”
Aggressive investor interest
European selldowns will continue in the equity capital markets, with Santander Mexico the biggest example in 2012 and Telefónica likely to be one of the biggest in 2013. Bankers are hopeful for more activity across the boards, after another low volume year in 2012.
JPMorgan is near the top of the ECM tables in a year when the total wallet has been greatly reduced. Its pan-regional presence paid off given that Brazil saw a far lower percentage of deals than usual. In Peru, it brought Cementos Pacasmayo to the US market, raising $265 million, and did the same for Chile’s Cencosud ($475 million). IPOs for Alpek ($794 million) and Santander ($4.1 billion) highlight the growing attention being paid to Mexico.
“Only the banks that are well positioned across the region have made money this year,” says Daniel Darahem, head of LatAm ECM. “This is the year that this business model has been vindicated.”
Activity beyond Brazil looks set to continue with deals from Peru’s InRetail and a Fibra real estate fund IPO for Macquarie Mexico. If business in Brazil picks up – and most consider it a question of when rather than if – the bank will be in a good position to benefit as well. It played a top-tier role in BTG Pactual’s $3.6 billion IPO.
“ECM was clearly slower in 2012, but there was a lot more diversity,” Aguzín says. “While I expect other countries to continue issuing, Brazil is going to have a higher stake relative to [last] year.”
Debt glorious debt
One area where there has not been a slowdown is in the debt capital markets. JPMorgan was one of three banks – joined by Citi and HSBC – at the top of the tables and boasting transactions from a broad variety of issuers and nationalities in the region.
“There has been a tremendous growth in DCM,” says Martin Marron, who was appointed JPMorgan’s chief executive for Latin America in December, adding to his duties as head of Americas sales and trading for global EM. “There has been a shift in the investor community. Investors are investing more in plain-vanilla bonds, rather than investing aggressively.”
Low interest rates and the strength of emerging market corporates should continue this trend in 2013. The $7 billion four-tranche offering from Petrobras, an extremely well bid $1.15 billion sale from Mexichem, and Colombia Telecomunicaciones’ $750 million high-yield debut, are just the tip of a long list of transactions.
“We are starting to see transactions going down the credit spectrum, and getting done at some very interesting yields,” says Roberto D’Avola, head of LatAm DCM. “This proves that the liquidity is out there, and not just for investment grade credits.”
The one area that the bank could develop more is in the region’s more active local markets, which D’Avola says the bank is working on. Local expertise will be increasingly important, Aguzín says, for both M&A and capital markets, as well as in the growing numbers of new instruments, such as Mexican Fibras, and specialized deals happening in local markets.
In terms of lending, JPMorgan was involved in nearly all of the region’s important deals. As with bonds, it saw diverse participation in terms of geography, including deals for Argentina’s Ternium, Mexico’s Comex and Pemex.
“When you have a market that used to have more than 60% of its capacity from European banks, we saw a shift in capacity from our competitor banks and we have taken advantage of that shift and stepped in with our balance sheet,” says Rodrigo Gracia, executive director at JPMorgan.
A key shift that Gracia and other loan bankers identify is a pickup in bridge loans for acquisitions, which are later taken out in the bond market.
JPMorgan’s recent work for Cencosud exemplifies this trend and the bank’s strengths. The bank was a manager of the Chilean supermarket operator’s ADR debut equity sale in July, and advised on its purchase of Carrefour’s assets in Colombia announced in October. It put down a $2.6 billion bridge loan, in syndication with six banks as of December, before bookrunning a $1.25 billion bond sale. Another equity follow-on is slated for January to complete the bridge loan takeout.
“We try to provide an integral approach to the business, and provide a full suite of services for the client,” says Aguzín. LF