Latin America in 2021: Another Busy Year for Brazil, Outlook for Mexico Less Certain

Brazil is expected to once again dominate legal work in Latin America in 2021, with a slew of privatizations in the pipeline and capital markets activity having picked up in the second half of the year. Brazilian lawyers anticipate a burst of domestic mergers and acquisitions following a blockbuster year for initial public offerings.

The outlook for cross-border work, the bread and butter for global law firms that work in Brazil, is less certain as multinational companies continue to focus on their internal needs during the pandemic and a weak local currency makes it difficult for Brazilian firms to consider outbound M&A. Global firms are prohibited from practicing local law in Brazil.

“There may be a lot of pent-up demand for investment in Brazil,” said Grenfel Calheiros, head of the São Paulo office for Simpson Thacher & Bartlett.

Michael Fitzgerald, chair of the Latin America practice at Paul Hastings, sees cross-border M&A facing challenges “because conducting due diligence in COVID times is almost impossible.” 

Strong demand for restructuring, litigation and bankruptcy work is expected to continue, while firms are also fielding more calls for assistance in compliance and advice on how companies can improve their corporate governance and sustainability efforts. Technology-oriented firms are also drumming up business as consumers stay indoors.

Nicolas Grabar, who leads the Latin America practice at Cleary Gottlieb Steen & Hamilton, expects capital markets and restructuring work to remain very active in 2021. The firm has been involved with in-court bankruptcy processes during the pandemic for two of the region’s biggest airlines: LATAM Airlines and Aeroméxico.

“Large Latin American clients have been accessing the debt markets whenever they can,” said Grabar. “I think next year will also be a big year for restructuring because there still are some big groups that will face liquidity challenges next year and some governments or government-owned companies that will face liquidity challenges.”

Investors have grown leery of Mexico after President Andrés Manuel López Obrador squashed a series of private sector investments, though a trend toward near-shoring of manufacturing amid U.S. tensions with China could bring investment to the country.

Throughout the region, distressed assets are seen possibly coming on the market by the second half of 2021 as COVID-19 inflicts more economic pain. In addition to privatizations in Brazil, Colombia is mulling the sale of 105 companies that Mergermarket estimates have a combined value of $45 billion. Project finance work is also seen picking up in South America, and in particular, Colombia.

On the regulatory front, Mexico is poised to legalize recreational use of marijuana, and Chile is set to rewrite its Constitution to replace a document drafted in 1980 during the military dictatorship of Augusto Pinochet. In Peru, protesters have also called for a new Constitution to replace what some view as an illegitimate document penned in 1993 under the rule of President Alberto Fujimori, who was later found guilty of crimes against humanity for extrajudicial killings.

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