October 3, 2018 / 4:24 PM / a month ago

Brazil dealmakers seen emerging from hibernation after election

SAO PAULO (Reuters) - Whether Brazil’s far right or hard left wins this month’s presidential elections, sluggish M&A activity in Latin America’s largest economy is likely to accelerate afterward, bankers and lawyers say.

Days before the first election round on Sunday, polls are predicting that conservative Jair Bolsonaro and leftist Fernando Haddad will move on to the second round of voting.

Electoral politics tend to play an outsize role in Brazil’s deals and capital markets. That has been especially pronounced this year given concern that a victory by Haddad’s Workers Party could lead to a reversal of market-friendly policies enacted by current President Michel Temer.

But even a victory by Haddad, while not the market’s preference, could set off a pickup of deals as likely future policies would become more clear, bankers and lawyers who spoke to Reuters said.

Bolsonaro has said he will tap University of Chicago-trained banker Paulo Guedes as his future finance minister.

Haddad’s economic team remains undefined. But a quick move to designate one - similar to Mexican leftist Andres Manuel Lopez Obrador’s post-election moves earlier this year - could ease market fears, bankers said.

“The election of a new president will unlock deals,” said Alessandro Zema, Morgan Stanley’s head of investment banking in Brazil. “Multinationals can decide whether they’ll buy or sell assets in Brazil.”

Deals involving Brazilian companies in the third quarter fell 17.7 percent from a year ago to $14.5 billion, according to Refinitiv Eikon data. In the first nine months of the year, total deal value fell 21.5 percent from the same period a year earlier. [L2N1VY1GH]

Morgan Stanley advised on two deals earlier this year in which Brazilian companies bought assets abroad: unlisted Raizen SA’s acquisition of Royal Dutch Shell PLC’s (RDSa.AS) Argentine fuel distribution assets and Marfrig Global Foods SA’s (MRFG3.SA) buyout of U.S. National Beef Packing Co. [nL1N1S10EU][nL1N1RM0MV]

The fate of two of the country’s highest-profile deals may hinge on the election results: a tie-up between Embraer SA (EMBR3.SA) and Boeing Co (BA.N) and the potential sale of petrochemical company Braskem SA (BRKM5.SA), partly owned by state controlled Petroleo Brasileiro SA (PETR4.SA), to LyondellBasell Industries NV (LYB.N).

Haddad has condemned the Embraer-Boeing deal and his Workers Party’s platform calls for Petrobras to stop its asset sale program, which includes its stake in Braskem.

VOLATILITY

The election of a president with policies that inspire long-term confidence may boost acquisitions and new investments in infrastructure, said Hans Lin, head of investment banking at Bank of America Merrill Lynch.

The sector has been almost paralyzed after corruption scandals involving companies such as construction conglomerate Odebrecht Engenharia & Construção SA. [nL4N1U55LM]

Foreign exchange volatility during the run-up to the election has already affected mergers and acquisitions in Brazil, said João Ricardo de Azevedo Ribeiro, partner at Mattos Filho law firm.

“We are seeing parties rediscussing price or even suspension of deals due to the currency issue,” Ribeiro said.

Share offerings, halted during the third quarter due to market volatility, might quickly pick up depending on the election results, said Pedro Juliano, head of investment banking at JPMorgan Chase & Co.

A pipeline of initial public offerings and follow-on transactions is primed for execution once the election is decided.

“Companies are getting ready for the opening of the capital markets if a new president with market-friendly policies is elected,” Juliano said.

JPMorgan leads the advisory ranking for Brazilian deals through September and has increased the size of its local team by 16 percent this year, Juliano said. He declined to disclose the bank’s Brazilian headcount.

Reporting by Tatiana Bautzer and Carolina Mandl, editing by Christian Plumb and Bill Berkrot

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