(Reuters) October 9, 2012 – International mergers and acquisitions in Latin America are set to drop by 30 percent this year as global activity dries up due to economic uncertainty, the Organization for Economic Cooperation and Development said on Tuesday.
Based on data through the third quarter, the OECD said it expected cross-border M&A activity from international companies to total around $60 billion in Latin America this year, down from $87 billion in 2011 and a record $91 billion in 2010.
Still, the drop in Latin America was less than the downturn in global M&A, which was expected to fall 36 percent in 2012.
However, Latin American flows in 2012 still were expected to rise by around 20 percent compared to pre-crisis levels, while global M&A deals were expected to fall by 50 percent.
The OECD said cross-border M&A in Brazil, which accounts for more than 60 percent of regional inflows, would fall about 23 percent from 2011. Chile, Latin America’s number two destination for cross border M&A, would fall 67 percent, the OECD said.
Argentina, Peru and Panama would also see a slowing this year, while Colombia and Mexico – two countries which have recently caught investors’ attention – would increase.
Foreign investment in Colombia has boomed over the last decade as the government has cracked down on drug gangs. As for Mexico, a change in government is seen as the country’s best shot in decades for much-needed structural reforms.
The OECD sa id China would overtake Japan as the number-two source of M&A activity in Latin America in 2012, just behind the United States, despite an expected 29 percent fall in investment.
China is also behind a boom in activity from state-owned enterprises, which now account for 30 percent of total cross-border M&A, three times higher than the global total. Half the Latin American activity is from Chinese firms.
In the last 18 months, for example, China Petrochemical Corp (Sinopec Group), the country’s largest oil company by sales, has announced plans to spend $7.1 billion for 40 percent of Repsol’s deepwater oil assets in Brazil and $3.54 billion for a 30 percent stake in Portuguese oil firm Galp Energia’s deepwater oil assets in Brazil.