Consulting firm Economatica estimates that Bolsa de Valores de Colombia, the premier stock exchange in Colombia, has enjoyed a staggering growth of 927.9% in the last decade, more than any other country in Latin America. So when the Colombian bourse announced that it was planning a corporate merger with Bolsa de Valores de Lima in Peru, eyebrows were raised. The union not only offers the opportunity for the creation of a regional superpower exchange, but has been quickly billed as the ‘first-ever cross-border’ stock market fusion in Latin America.
The proposed merger should not be confused with the pending project called Integrated Latin American Market (MILA) that will integrate the Colombian, Peruvian and Chilean exchanges, and will take off in November this year. Rather, this corporate stock exchange merger creates a new company boasting a total market capitalization of $378 million, with the Bolsa de Valores de Colombia owning a 64% share and Lima holding the 36% balance. Explaining the rationale behind the move, the stock exchanges from both countries said that the merger would create a new, competitive exchange that can “face the challenges of globalized capital markets.”
There are other benefits touted. Francis Stenning, the general director of Lima’s exchange, told the Wall Street Journal that the fusion would generate a ‘strategic alignment and help complement market integration.’ Crucially, the move could prove of immense value to both Peru and Colombia – emerging markets that are expected to drive growth in the Latin American region. A larger and more diverse capital market is the most obvious result of the merger, and should mark a huge step in taking Peru and Colombia up to the next rung on the ladder of economic and financial superstardom, especially in a region dominated by heavyweights like Brazil and Chile.
Of course, the new stock exchange would still be dwarfed by MILA, which is set to combine the stocks of more than 560 companies, if and when it becomes operational. That project has run into delays and difficulties, and Stenning admitted to Reuters that the test run for this ‘big, complex project,’ has been extended by six weeks to allow for such eventualities. However, full integration for MILA is expected by the end of 2011. Now, questions will be raised if the Peru-Colombia venture could also run into the same difficulties. The move first needs to be approved by the boards of both exchanges as well as financial regulators. The technology that would allow such cross-listing of stocks needs to be in place. But despite these hurdles, implementation of the corporate merger is expected as early as March, and in effect will test the waters for the MILA launch.
The bottom-line though is that such mergers create exciting times for a region that is already attracting heavy foreign investment. Latin’s America’s amazing growth story appears set for new beginnings. And fusion stock exchanges could well drive the trend this year.
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