Scotiabank confident of Peru’s prospects
Resource-based economy strong Scotia to own 80% of merged Peruvian bank
A$390 million deal giving the Bank of Nova Scotia 80 per cent ownership of Peru’s third- largest bank reflects confidence in the South American country’s resource-based economy, Scotiabank executives said yesterday.
Scotiabank is spending $330 million ( U. S.) to acquire 80 per cent of Banco Wiese Sudameris and raise its stake in Banco Sudamericano from 35 per cent to full ownership. It will then merge the two financial institutions.
It will own 80 per cent of the new company, with the other 20 per cent held by Banca Intesa of Italy, the current owner of Banco Wiese Sudameris, which will invest another $266 million.
Including Scotiabank’s $20 million minority stake in Banco Sudamericano, acquired eight years ago, the Torontoheadquartered bank is in effect paying $350 million for 80 per cent of the combined bank, whose name has not been determined. The deal, announced Monday evening and explained in a conference call yesterday, is expected to be completed in March. The endorsement of the families that own 65 per cent of Banco Sudamericano and the Peruvian government’s approval are lined up, Scotiabank said.
“ It’s fair to say the government’s been working very closely with us in terms of moving this thing forward,” chief financial officer Sabi Marwah said. The deal appears unfavourable to Banca Intesa, which will contribute $266 million and end up with 20 per cent of a bank it already largely owns, while Scotiabank puts up $350 million for 80 per cent. As analyst Ian De Verteuil of BMO Nesbitt Burns calculates it, Scotiabank is paying 1.3 times book value for its stake in the combined bank while Intesa pays four times book value for the minority share.
“ This is part of Intesa’s ongoing strategy of withdrawing from South America,” Timothy Hayward, Scotiabank’s executive vice-president of international banking, told analysts on the conference call.
Scotiabank, by contrast, has been actively expanding in Latin America with significant investments in recent years in Mexico, the Dominican Republic, Puerto Rico and El Salvador, and ongoing operations in Costa Rica, Panama, Chile and Venezuela as well as across the Caribbean.
In Peru, which has been benefiting from booming global demand for copper and other resources, “ exports are growing at something like an annualized rate of 37 per cent. Scotiabank expects the takeover of Banco Wiese to involve the cancellation of a $250 million Peruvian government guarantee established during a 1999 bailout of the bank.
This will result in “ freeing up these funds for other important government projects and initiatives on behalf of the people of Peru,” Scotiabank CEO Rick Waugh said.