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Sep 16

Latin America ripe with opportunities for direct investment

Posted by dbedell in Vale, trade, RiskNorsk Hydromergers and acquisitions, M&A;, Latin America, Heinekengreenfieldforeign direct investmentFemsaDealsCNOOC


Latin American direct investment—both greenfield and M&A—continues to rise as companies from around the world take a look at the opportunities that the region holds.

The region is not only doing very well from a macro-economic perspective, but it is also experiencing strong domestic growth, strong trade growth, and boasts an experienced corporate executive class who have led the region’s businesses through the crisis with relative ease.

According to data from Thomson Reuters, completed M&A transactions in the region hit $81.6 billion in the first half of 2010, up more than 40 percent from the same period last year. And some of the biggest deals have involved multinational companies building their presence in the region.

The biggest international deal in the first half of 2010, according to Thomson Reuters data, was the purchase of Mexican brewer Femsa by Heineken of The Netherlands for $7.4 billion.

There are a number of other jumbo deals involving Latin American companies and foreign firms that are in the works as well. There is the $4.9 billion purchase of Brazilian company Vale’s aluminum operations by Norwegian firm Norsk Hydro, which is under review at the moment.

A group of Indian oil companies is also in the process of acquiring  a 40 percent stake—valued at $4.9 billion—of Venezuela’s Carabobo region oil development project. Plus, there is the joint venture—valued at $3.1 billion—between CNOOC of China and Argentine company Bridas for oil production and reserve development.

The region is increasingly on the radar both for foreign direct investment and portfolio investors as trade in commodities heats up. As Alfredo Coutiño, Director for Latin America, Moody’s Analytics, explains: “Given the weakness of the world economy, the driver of Latin American exports has been commodities, particularly because of the solid demand from China.”

He adds: “Thus, South American countries have been benefited from still-favourable conditions in commodity prices in international markets, particularly in agricultural products, mining, and oil. Mexican exports, on the other side, have been benefited from a strong demand from the US automotive market, which was boosted by the government stimulus to consumers.”

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