RIO DE JANEIRO, BRAZIL – Preparations to merge the leading stock exchanges of Chile, Colombia, and Peru are progressing smoothly. Yesterday, the Chilean stock exchange advised the Financial Market Commission (CMF) about the new steps of regional integration, which will be carried out through a holding structure domiciled in Chile.
In addition, the Santiago Stock Exchange advised that the future shareholding structure of the regional holding company would have a composition of 40% for Chile, 40% for the Bogotá stock exchange, and 20% for its peer in Lima.
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However, the Colombian Stock Exchange provided further details of the merger, informing that the Ibero-American law firm Philippi Prietocarrizosa Ferrero DU & Uría (PPU), with offices in Chile, Colombia and Peru, was hired to provide legal advice on the operation, taking into account the legal structure and regulatory bodies of each country.
FUTURE FIGURES FOR THE REGIONAL STOCK EXCHANGE
One of the items reported by the Colombian stock exchange was previously unknown figures of the merger.
From the consolidation of the integration, “it is estimated that the annual increase in revenues would be between US$21 million and US$41 million in the short term (year five), and between US$27 million and US$51 million in the medium term (year 8) due to synergies in the traditional business lines and in the development of innovation lines (co-location services and licensing of regional indexes).”
Additionally, once the integration is consolidated, it could capture an additional value in additional annual revenues of US$20 million. Also, the merger estimates a reduction in personnel, IT systems, and third-party services expenses of between US$8 million and US$14 million per year in the short term and up to US$19 million in the long term.
FUTURE OF THE CSD
One of the most striking aspects of the Colombian Stock Exchange report is its look at the future of the Central Securities Depository (DCV). Their principal shareholders are the AFPs (30%), banks (30%), and the Santiago Stock Exchange (23%).
“In the event of a future acquisition of the DCV in Chile, it is expected to be able to add additional expense synergies of US$6 million – US$7 million in the medium term,” the document says.
Likewise, the Bogotá location also projects an optimization of recurring IT investments – OPEX (operational expenditure) and CAPEX (capital expenditure) – of up to 50% (US$5 million) in the medium term.
“To execute the integration and capture the expected benefits, there would be a one-time requirement of US$43 million in CAPEX and OPEX, which would be executed in the first five years, with technology accounting for 60% of the total requirement. Most of the investments would be required in the short term, and include the trading platform, consulting and other third-party services, higher personnel expenses resulting from the projected optimization, and administrative expenses for implementation and contingencies,” estimates the Colombian Stock Exchange.
SCENARIOS FOR FUTURE EBITDA
According to the report, the regional stock holding company is considering various post-merger scenarios for its Ebitda.
In a conservative scenario, the integration could result in an Ebitda of US$81 million in 2030, reaching an Ebitda margin of 53%.
“In that scenario, the project would generate an additional equity value, compared to the non-integration option, of between US$78 million – US$81 million, considering the minimum range of benefits, i.e., no revenue synergies, a high degree of required investments, and that 50% of the cost synergies would be returned to the market through a reduction in tariffs,” the document states.
In the base or “most likely” scenario, a mid-point equity value for the integrated entity of an estimated US$764 million is derived. This implies an upside or increase in value “of a little more than 23%, equivalent to US$144.5 million, while the total synergies of the integration, estimated at US$230 million, are distributed in a ratio of approximately 62.5% for shareholders and 37.5% for market participants, through tariff reductions.”
THE NEW BOARD OF DIRECTORS
There will also be new developments in corporate governance. A nine-person Steering Committee will be established in the implementation process, made up of three members from each stock exchange.
The execution of the tasks will be the responsibility of each general manager of the Chilean, Peruvian, and Colombian stock exchanges, who will have multidisciplinary teams.
Once the Regional Holding Company has been created, a board of directors will be established with 16 members, 5 of whom will be independent.
“Likewise, with the entry into force of the Regional Holding Company, the boards of directors of the subsidiaries, including the stock exchanges, will have a board structure composed of seven members elected by the Regional Holding Company, three of whom must be local directors, so that there is full alignment, not only of the strategy of the local stock exchanges but also of the policies and determinations for the benefit of the market,” the document states.
With information from Diario Financiero