Discussion: Will this move make Peru, Colombia and Chile more competitive on a global scale, or only more competitive within South America? What other issues may delay the integrations?
Monday, January 31, 2011
Colombia and Peru Plan Stock Market Merger
FT: Peru suspends integration with Chile, Colombia
Colombia and Peru are planning to merge their stock markets in the first cross-border union of stock markets in Latin America. The two stock markets have agreed, in a memorandum of understanding, that Colombia will have 64-percent control and Peru will have 36-percent control in the new exchange. Initially, the companies that trade in the new market will have a cumulative value of $378bn. The merger proposal still needs to be approved by regulatory bodies as well as the exchange boards, but if all goes well, the merger may occur as early as March.
Both Colombian and Peruvian officials are optimistic about the merger. The president of the Colombian exchange expects the merger to strengthen both countries’ positions in the international economy. By combining the two stock exchanges it will allow investors to more easily trade within both exchanges and will simplify a future merger with Chile.
Later this year, Colombia, Peru, and Chile plan to integrate trading between their stock markets in a project called Mila, which is separate from the Colombian and Peruvian merger. Nonetheless, the Colombia-Peru merger is expected to strengthen the three-country stock-market integration when it occurs. Mila will be Latin America’s second largest stock exchange behind Brazil. It will have 563 companies with an estimated worth of $614 billion. Similar to the merger between Colombia and Peru, Mila will make trading between the three stock exchanges easier. Shares will be cross-listed on each exchange, allowing investors direct access to the other markets. Officials also say that the integration will make it easier for companies to receive financing in the three countries.
If tax rates in Columbia, Peru, and Chile were not standardized for locals and foreigners, Peruvian investors would be at a disadvantage because investors in the other countries would receive a lower tax rate on their gains. Therefore, near the end of 2010, Peru’s stock market threatened to withdraw from Mila if the Peruvian Congress did not agree to more favorable tax rates for capital gains. However, in a late Congressional session, Peruvian lawmakers voted to standardize the tax at 5 percent for locals and foreigners alike. Before, other Latin American countries had lower capital gains tax rates than Peru. The chairman of the committee explained that the favorable tax rate will help create symmetry among the three exchanges.
The heads of the stock markets stress the large scale of the two merger projects and recognize the obstacles ahead in completing them. For example, the test period for Mila was extended another six weeks because of the capital gains standoff in the Peruvian congress. The complexity of the project, as well as the amount of technology needed to complete it, will also cause further delays. Although these mergers will face obstacles, the presidents and managers of the exchanges remain optimistic about the integrations and foresee them benefiting each country.