IT tops LatAm deal flow in 2016

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TTR Deal Tracker
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LATIN AMERICA

TTR Deal Tracker is a monthly email update identifying M&A trends in Latin America and compiling YTD rankings of leading financial and legal advisors

BRAZIL: IT sector leads dealmaking in 2016

Transactions in Brazil’s IT sector led dealmaking in 2016 with volume up 17% over the previous year, according to TTR data (www.TTRecord.com).

The number of cross-border deals in the space led by international buyers fell slightly, meanwhile, from 82 in 2015 to 68 in 2016. As in 2015, North American bidders demonstrated the strongest appetite for Brazilian firms from among the pool of foreign investors targeting the space.

MEXICO: IT deal volume up 23%

Dealmaking in Mexico’s IT space was up 23% in 2016 over the previous year, according to TTR data (www.TTRecord.com).

The number of transactions led by foreign buyers fell slightly from 13 in 2015 to 11 in 2016, meanwhile. The largest deal in the space in 2016 was the USD 55m capital injection in e-commerce company Linio.

Rankings / League Tables

Latin America Ranking – 2016*

Financial Advisory by number

Banco Itaú BBA leads TTR’s Latin America financial advisory ranking for 2016 with 46 deal mandates for the year on transactions worth a combined USD 32.1bn. Itaú’s 2016 performance represents a 13% dip in deal volume and a 55% spike in aggregate value compared to its 53 mandates on deals worth a combined USD 20.7bn in 2015, when it also led the chart. Banco Bradesco BBI climbed from third in 2015 to take second place in 2016 region-wide, its volume up 67% from 21 to 35 deals, the aggregate value of those transactions up 145% from USD 12.3bn to USD 30bn. Banco BTG Pactual was bumped from second in 2015 to third in 2016, meanwhile, its deal volume down 18% from 40 to 33, its aggregate value down 4% from USD 15.5bn to USD 14.9bn. BAML grew its deal volume 186% to place fourth while the aggregate value of its transactions climbed 1,494% to USD 22bn after not placing among the top 10 regionally for full year 2015. Banco Santander fell one place in the chart to take fifth despite increasing volume 50% from 12 to 18 and upping aggregate value 25% from USD 8bn to USD 10bn between the two twelve-month periods. Lazard, in sixth with 14 deals worth a combined 1.6bn, did not place among the top 10 regionally in 2015, nor did Citigroup, in seventh with 13 mandates on deals together worth USD 8.3bn, nor JPMorgan, in eighth with 12 worth USD 14bn combined. BBVA fell three positions to take ninth, despite adding one deal to its count and the aggregate value of it deals increasing 205% from USD 1.4bn to USD 4.3bn. BNP Paribas, in tenth, also with 12 mandates for the year in the region, was not among the top 10 financial advisors in Latin America in 2015.

Latin America Ranking* – 2016
Legal Advisory by number

Baker & McKenzie leads TTR’s Latin America legal advisory ranking for 2016 with 29 mandates on deals together worth USD 3.2bn, representing a 12% drop in volume and a 50% increase in aggregate value compared to its performance the previous year, when it also led the chart. White & Case follows in second, its deal count up by two to 15, the aggregate value of its transactions up 158% from USD 1.3bn to USD 3.5bn relative to its 2015 performance when it placed third. Clifford Chance also climbed one position in the chart to take third, its 14 deals worth a combined USD 9bn, representing a 56% increase in volume and a 6% increase in aggregate value compared to its nine together worth USD 8.5bn in 2015. Jones Day fell two positions from second to take fourth, its deal volume down by 10 to 14, its aggregate value down 61% from USD 2.8bn to USD 1bn. Linklaters is up three positions in the ranking from eighth to fifth, its deal count nearly doubling from seven to 13, the combined value of its transactions up nearly 4,000% from USD 233m to USD 9.3bn. Cleary Gottlieb Steen & Hamilton also advised on 13 deals in 2016, in its case worth a combined USD 4.9bn, after not placing among the top 10 legal advisors in Latin America in 2015. Skadden, Arps, Slate, Meagher & Flom, ranked seventh, advised on nine deals in 2016, the same volume as in 2015, while the aggregate value of its transactions increased 372% from USD 1.2bn to USD 5.6bn. Shearman & Sterling fell three positions to take eighth, its deal volume remaining constant, its aggregate value up 109% from USD 1.2bn to USD 2.6bn. Simpson Thacher & Bartlett is up one place in the chart in ninth after adding three deals to its count in 2015 while its aggregate deal value fell 2% from USD 6.4bn to USD 6.2bn. Hogan Lovells, in tenth with seven deals worth a combined 6.6bn, was not among the top 10 in 2015.

Brazil Ranking* – 2016
Financial Advisory

Banco Itaú BBA leads TTR’s Brazil financial advisory ranking for 2016 with 37 mandates on deals worth a combined USD 24.6bn. Brazil’s top investment bank also led the chart in 2015 when it’d advised on 46 deals worth a combined 20bn, representing a 20% decline in volume and a 23% increase in aggregate value. Banco Bradesco BBI is up one place in the chart to take second, its volume increasing 75% from 20 to 35, its aggregate value up 145% from USD 12.3bn to USD 30bn. Banco BTG Pactual fell one place to take third, its volume down 17% from 29 to 24, its aggregate value down 37% from USD 14bn to USD 8.9bn. BAML ranks fourth with 16 deals worth a combined USD 15.9bn after not placing among the top 10 investment banks in Brazil for full year 2015. Cypress Associates, in fifth with 11 deals together worth USD 22m, was also absent from the top 10 in 2015. Vinci Partners ranks sixth, as it did in 2015, its deal count increasing by one, its aggregate value up 164% from USD 184m to USD 487m. BR Partners fell two positions in the chart to take seventh, its volume on par at nine, its aggregate value up 353% from USD 347m to USD 1.6bn. JPMorgan, in eighth with seven deals for the year worth a combined USD 9bn, was not among the top ten in 2015, nor was BNP Paribas in ninth with six deals together worth USD 712m. Rothschild fell one place in the chart to take tenth, its deal count falling by one, its aggregate value up 3% from USD 8.2bn to USD 8.5bn.

Brazil Ranking* – 2016
Legal Advisory

Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados leads TTR’s Brazil legal advisory ranking for full year 2016 with 71 transactions worth a combined USD 25.6bn, representing a 20% increase in volume and a 99% jump in aggregate value from the 59 deals together worth USD 12.9bn in 2015 when it ranked second. Pinheiro Neto Advogados fell from its leadership position in 2015 to rank second, its volume down 9% from 67 to 61, its aggregate value down 7% from USD 20.4bn to USD 19bn. Machado, Meyer, Sendacz e Opice Advogados ranks third with 59 deals worth a combined USD 6bn, up 16% by volume, down 73% by aggregate value compared to its performance in 2015, when it also ranked third. Souza, Cescon, Barrieu & Flesch Advogados ranks fourth, as it did for full year 2015, its deal count up from 51 to 58, the combined value of its deals up 18% from USD 6.7bn to USD 7.9bn. TozziniFreire Advogados climbed three positions in the chart to take fifth, its volume up by 10 to 41, its aggregate value up by 867% from USD 875m to USD 8.5bn. Barbosa, Müssnich, Aragão is down one position in the chart in sixth, its deal count down from 45 to 37, its aggregate value down 39% from USD 11.8bn to USD 7.2bn. Veirano Advogados, in seventh, also fell one place in the chart, its volume down 23% from 43 to 33, its aggregate value up 647% from USD 1.5bn to USD 11.2bn. Demarest Advogados too is down one place in the ranking, its volume having declined 24% from 38 to 29 while the aggregate value of its deals rose 178% from USD 1.9bn to USD 5.4bn. Stocche, Forbes, Padis, Filizzola, Clapis, Passaro, Meyer e Refinetti Sociedade de Advogados ranks ninth with 27 mandates in 2016 worth a combined 1.5bn, after not placing among the top 10 for full year 2015. Lefosse Advogados, in tenth with 24 deals together worth USD 8.7bn, was also absent from the top 10 in 2015.

Mexico Ranking* – 2016
Financial Advisory

BBVA leads TTR’s Mexico financial advisory ranking for full year 2016 with nine deals worth a combined USD 4.1bn, up from seven together worth USD 960m in 2015 when it also led the chart. Citigroup ranks second with four transactions worth a combined USD 4.5bn, leading the chart by aggregate value after not ranking among the top 10 for full year 2015. PC Capital ranks third, as it did the previous year, its deal count down by one to three. Deutsche Bank, in fourth with two deals in 2016, is tied by volume with JPMorgan, Morgan Stanley, Lazard, Credit Suisse Group, Alfaro, Dávila y Ríos and AZ Capital. Of the lot, only Lazard and Alfaro, Dávila y Ríos ranked among the top 10 in 2015, also with two transactions each. Lazard ranked sixth for full year 2015, its two deals amounting to USD 1bn combined, compared to USD 1.2bn in 2016, while Alfaro, Dávila y Ríos ranked fifth, its two transactions together worth USD 2.2bn, compared to USD 575m a year later.

Mexico Ranking* – 2016
Legal Advisory

Creel, García-Cuéllar, Aiza y Enríquez leads TTR’s Mexico legal advisory ranking for full year 2016 with 25 mandates on deals worth a combined USD 3.7bn, representing a 7% decline in volume and a 74% drop in aggregate value compared to its 27 transactions together worth USD 14bn in 2015, when it also topped the chart. Galicia Abogados is up one position in second with 14 deals worth a combined USD 4.5bn, on par by volume and up 57% by aggregate value compared to its performance for full year 2015, when it ranked third. White & Case México climbed one position in the chart to third, despite a slight decline in volume from 11 to nine transactions and a 26% drop in aggregate value from USD 1.3bn to USD 973m. Ritch, Mueller, Heather y Nicolau, in fourth with eight deals worth a combined USD 2bn, was not among the top 10 for full year 2015. Mijares, Angoitia, Cortés y Fuentes ranks fifth, also with eight advisory mandates in 2016, down from 15 in 2015 when it ranked second, while the firm’s aggregate deal value dipped 23% from USD 2.4bn to USD 1.8bn. Jones Day México is down one position in the chart in sixth, its deal count down by two to eight, its aggregate value down 55% from USD 2.2bn to USD 1bn. Santamarina y Steta Abogados, absent from the top 10 ranking for 2015, advised on six transactions in 2016 to place seventh, its deals together worth USD 2bn. González Calvillo Abogados, in eighth, is tied by volume with Von Wobeser y Sierra, the former’s five worth USD 1.8bn combined, the latter’s together worth USD 1.2bn. Neither firm was among the top 10 for 2015. Baker & McKenzie México fell four positions to bring up the rear with four transactions in 2016, half the volume of the previous year, while its aggregate value increased 86% from USD 366m to USD 680m.

* TTR Rankings are generated with transactions announced or closed in 2016 year-to-date. The ranking includes sales and acquisitions of shares and of assets, creation of joint ventures, and Private Equity/Venture Capital investments. The legal advisor rankings for Brazil and Mexico take into consideration advisory services regarding domestic laws. All rankings only include deals where a company of the respective country was the target of the transaction. In the case of LATAM, it would be a Latin American country. The LATAM ranking does not specify the origin of the advisory law, so the filter only considers firms from the UK/US.

In case of a draw, the adopted criteria will be the following: if the draw is due to number of transactions, the total deal value prevails; if it is due to deal value, the number of transactions prevail. When a draw of both number of transactions and deal value occurs, the same position will be retained and the deals will be arranged alphabetically.

Appetite Grows for Chilean Food Assets

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TTR Deal Tracker
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LATIN AMERICA

TTR Deal Tracker is a monthly email update identifying M&A trends in Latin America and compiling YTD rankings of leading financial and legal advisors

BRAZIL: Telecom dealmaking gains ground

Dealmaking in Brazil’s telecom sector inched ahead in the first nine months of 2016, with a 46% increase in transaction volume compared to the same period last year, according to TTR data (www.TTRecord.com).
Inbound deals in the sector were sparse in both periods, with just two of 13 transactions led by international buyers in the first nine months of 2015, and one of 19 by the close of September this year.

CHILE: Appetite grows for food industry

Transactions in Chile’s food and beverage industry rose 57% in the first nine months of 2016 over the same period in 2015, according to TTR data (www.TTRecord.com).
The participation of foreign buyers in the space was constant between both periods, though inbound deals fell relatively, with four of seven transactions led by international bidders to the close of 3Q15, compared to four of 11 to the close of 3Q16.

Rankings / League Tables

Latin America Ranking – 2016*

Financial Advisory – Year to Date (YTD)

Banco Itaú BBA holds a comfortable lead in TTR’s Latin America financial advisory ranking at the close of 3Q16, with 28 transactions worth a combined USD 16bn. The region’s top bank is two deals behind by volume and 8% up by aggregate value on its nine-month performance to the close of 3Q15, when it also led the chart. Banco Bradesco BBI is up one position to take second place, its deal count up 140%, the combined value of its transactions leading the pack at USD 23bn. Banco BTG Pactual fell from second place a year ago to third, its mandates down 43% from 23 and aggregate deal value down 41% from USD 10.6bn. Banco Santander added four deals to its tally of eight a year ago to take fourth place, its aggregate value up 43% from USD 5.3bn to USD 7.5bn. Citigroup jumped 450% by volume and 440% by aggregate value to take fifth, after not placing among the top 10 investment banks in the region to the close of 3Q15. BAML is up one place to take sixth after adding four deals to its count of six a year ago and increasing aggregate value 882% to USD 12.2bn. BNP Paribas was absent from the top 10 ranking at the close of 3Q15 and now ranks seventh, tied with BAML by volume. BBVA is down two positions in eighth, despite adding two transactions to its count of a year ago and increasing aggregate deal value by 179%. Morgan Stanley, in ninth, and Vinci Partners, in tenth, were both absent from the regional top 10 chart a year ago.

Baker & McKenzie leads TTR’s Latin America legal advisory ranking at the close of 3Q16 with 18 transactions worth a combined USD 2.5bn. Baker also led the chart at the close of 3Q15, when the firm had advised on 27 deals together worth USD 2bn in the first nine months of the year. Jones Day follows in second, as it did a year ago, though deal volume is down by a similar 32%; its aggregate value is down 58%. Clifford Chance ranks third by volume with 10 deals and leads by aggregate value of USD 8.5bn. Clifford Chance closed 3Q15 ranked fifth with six deals together worth a similar USD 8.4bn. Cleary Gottlieb Steen & Hamilton, in fourth, and White & Case, in fifth, have the same deal count. Cleary was not among the top 10 a year ago, while White & Case fell from third, despite increasing volume from seven to 10 and growing aggregate value from USD 1.2bn to USD 1.8bn. Linklaters, in sixth, and Hogan Lovells, in seventh, were both absent from the chart a year ago. Shearman & Sterling lost one deal compared to its tally of a year ago and fell four positions to take eighth. Simpson Thacher & Bartlett also lost a transaction on its tally of a year ago, but held on to its ninth place ranking, nonetheless, the combined value of its deals down 56%. Skadden, Arps, Slate, Meagher & Flom is down two transactions and three positions in the chart, to pull up the rear with four mandates on deals worth USD 2.7bn, a 207% jump in aggregate value from USD 866m a year ago.

Brazil Ranking* – 2016
Financial Advisory – Year to Date (YTD)


Banco Bradesco BBI tops TTR’s Brazil financial advisory ranking at the close of 3Q16, one deal ahead of Banco Itaú BBA. With 24 mandates YTD, Bradesco is up 140% by volume, 122% by value on its performance for the nine-month period ending a year ago, when it ranked third. Itaú has slipped to second in the ranking, its volume down 15%, the combined value of its deals down 19%. At the close of 3Q15, Itaú led Banco BTG Pactual by 11 transactions and Bradesco by 16. BTG’s volume is down from 15 to 11, placing it in third, its aggregate value down 50% from 26 deals a year ago. BAML more than doubled its mandates in Brazil, climbing from tenth to fourth in the chart, its nine deals worth USD 10bn in aggregate compared to USD 1.2bn a year ago. Banco Santander ranks fifth with seven deals worth a combined USD 5.7bn, not having placed among Brazil’s top-10 financial advisors a year ago. Vinci Partners, in sixth, was also absent from the ranking at the close of 3Q15, and is now tied with Santander by volume, its seven deals together worth USD 455m.
BR Partners, in seventh, maintained its deal count of a year ago while falling two positions in the chart, the value of its six deals YTD worth USD 1.5bn compared to USD 256m in the first nine months of 2015. Rochschild is up by one deal and one place in the chart on its performance of a year ago, placing eighth with five mandates on transactions together worth USD 8.4bn, compared to four worth USD 7.7bn at the close of 3Q15. Magma, in ninth, and Cypress Associates, in tenth, were both absent from the top 10 a year and also have five deal mandates apiece at the close of 3Q16, together worth USD 33m and USD 3m, respectively.

Legal Advisory – Year to Date (YTD)


Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados leads TTR’s Brazil legal advisory ranking to the close of 3Q16, with a whopping 50 mandates YTD on transactions worth nearly USD 21bn combined. The leading transactional law firm in Brazil has climbed from second a year ago, when it had 10 fewer deals worth just under USD 11bn in aggregate. Machado, Meyer, Sendacz e Opice Advogados climbed from third a year ago to take second place, adding 11 deals to its count of 31 at the close of 3Q15. The combined value of its transactions fell 79% from a chart-leading USD 12.6bn to USD 2.7bn, meanwhile. Pinheiro Neto Advogados fell from first to third by deal count and places second among the top 10 by aggregate value, with USD 17.2bn in combined deals. Souza, Cescon, Barrieu & Flesch Advogados holds on to its fourth-place ranking of a year ago, with 35 deals worth USD 3.4bn combined, compared to 29 together worth USD 5.5bn at the close of 3Q15. TozziniFreire Advogados is up four positions from ninth a year ago to take fifth in the chart at the close of September. TozziniFreire increased its tally from 20 at the close of 3Q15 to 35 a year later, and bumped aggregate value up from USD 798m to USD 3.4bn. Stocche, Forbes, Padis, Filizzola, Clapis, Passaro, Meyer e Refinetti Sociedade de Advogados ranks sixth, after not placing among the top 10 M&A firms in Brazil in the first nine months of 2015. Barbosa, Müssnich, Aragão lost four deals from its tally of a year ago and fell one position in the chart to take seventh, closing 3Q16 with 21 mandates on transactions together worth USD 5.7bn, compared to 25 together worth USD 9.1bn to the close of September 2015. Not among the top-10 a year ago, Lefosse Advogados closes the quarter in eighth, with 19 mandates on deals together worth USD 7.7bn. Demarest Advogados is tied with Lefosse by deal volume, but follows in ninth for its lesser aggregate transaction value of USD 2.7bn. Veirano Advogados slid from fifth at the close of 3Q15 to tenth a year later, its deal volume falling from 26 to 17 while the combined value of its deals grew from USD 799m to USD 5.7bn.

Mexico Ranking* – 2016

Financial Advisory – Year to Date (YTD)

BBVA tops TTR’s Mexico financial advisory ranking at the close of September with seven deals together worth USD 3.3bn, up from four worth USD 869m a year ago, when it also led the chart.Citigroup climbed from eighth a year ago to runner-up, with four transactions YTD worth a combined USD 4.5bn, leading the top 10 by aggregate value. Deutsche Bank ranks third with two mandates at the close of 3Q16, tied by deal count with JPMorgan, in fourth, Morgan Stanley, in fifth, Lazard, in sixth, Credit Suisse Group, in seventh, and RIóN M&A, in eighth. Of the lot, only RIóN placed among the top 10 a year ago, when it ranked third. Goldman Sachs, in ninth, and PC Capital, in tenth, have advised on one transaction each in Mexico, YTD; both were absent from the top 10 chart a year ago.

Creel, García-Cuéllar, Aiza y Enríquez leads TTR’s Mexico legal advisory ranking at the close of September, with 18 mandates on deals worth a combined USD 3.3bn. The leading firm’s deal count compares with 21 together worth USD 13bn in the nine-month period ending a year ago, when it also stood at the top. Galicia Abogados added two deals to its tally to take second place with 12 mandates on transactions together worth USD 4.5bn. Mijares, Angoitia, Cortés y Fuentes slipped from second place a year ago, to third, its seven deals worth USD 1.8bn at the close of 3Q16, compared to 15 together worth 2.4bn at the close of 3Q15. Jones Day México is tied with Mijares by volume, with the same seven deals as a year ago. Ritch, Mueller, Heather y Nicolau, in fifth, was not among the top 10 a year ago, its six deals YTD together worth USD 1.8bn. White & Case México climbed two places in the chart to take sixth, despite static deal count and a 26% drop in aggregate value between the two periods. Santamarina y Steta Abogados, in seventh with five mandates YTD, and González Calvillo Abogados, in eighth with four, were both absent from the top 10 a year ago, as was Von Wobeser y Sierra, in ninth with four deals too. Basham Ringe y Correa slipped from seventh a year ago, to tenth, its deal count halved from six to three, its aggregate value down 93% from USD 1.4bn to USD 91m.

* TTR Rankings are generated with transactions announced or closed in 2016 year-to-date. The ranking includes sales and acquisitions of shares and of assets, creation of joint ventures, and Private Equity/Venture Capital investments. The legal advisor rankings for Brazil and Mexico take into consideration advisory services regarding domestic laws. All rankings only include deals where a company of the respective country was the target of the transaction. In the case of LATAM, it would be a Latin American country. The LATAM ranking does not specify the origin of the advisory law, so the filter only considers firms from the UK/US.

In case of a draw, the adopted criteria will be the following: if the draw is due to number of transactions, the total deal value prevails; if it is due to deal value, the number of transactions prevail. When a draw of both number of transactions and deal value occurs, the same position will be retained and the deals will be arranged alphabetically.

Mexico’s revision of maritime regulatory framework brings clarity in wake of energy reform

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torres-medina

By Benjamin Torres and Hector Medina

Baker & McKenzie México 

Mexico is restructuring its entire regulatory framework governing the energy sector, and hasn’t neglected the need to address ambiguities hindering private sector participation in linked industries governed by maritime law.

The first step in the country’s sweeping energy reform was taken by the Mexican government on 20 December, 2013, with landmark amendments to certain key articles of the Mexican Constitution related to the energy sector, including hydrocarbons and power generation. Those amendments are the legal foundation for broader participation by private entities in several activities that were previously reserved for Mexican nationals or the Mexican state.

Mexico has made several attempts to stimulate the development of its energy sector over the years, including the so-called “Energy Reform” spearheaded by former president Felipe Calderon in 2008. The truth is, none of the previous attempts had the desired effect, since any real change required a revision of the fundamental legal framework governing the energy sector in Mexico: the Constitution.

The recent constitutional reforms have led to the enactment of a new set of energy laws and regulations as well as substantive amendments to other laws and regulations to align them with the new energy reform framework. The intention is clear: to allow greater private participation in the entire Mexican energy sector, downstream, midstream and upstream, whether hydrocarbons or power.

The reform is still in its implementation phase and there are several regulations, administrative guidelines and other regulatory provisions yet to be issued. However, over the last year, the reform has achieved measurable results, particularly in the hydrocarbons sector with the publication of tenders for offshore shallow-water exploration and production and production enhancement under the Round One bidding procedure, which were published by the recently strengthened Mexican National Hydrocarbons Commission (CNH). The call for tenders has been well received by many of the relevant players in the domestic and international energy industry. Several well-known companies in the upstream sector are participating in different stages of the tender process.

There are other sectors of activity that have been realigned with the new energy policies introduced by the Mexican government as a result of the constitutional reforms. The maritime sector, which has a very close connection to the oil and gas industry in offshore exploration and production operations, is governed by the Navigation and Maritime Commerce Law enacted in June 2006 (the NMC law).

The NMC law governs the operation of vessels and other naval artifacts in Mexican waters as well as the most important agreements related to such activities including charter parties and purchase and sale agreements, among others. A naval artifact is defined as any fixed or floating structure not designed or built for navigation but that is capable of being moved on the water by itself or by another vessel, or built on the water.

Regulations for the NMC Law were published in the Federal Official Gazette on 4 March, 2015 and became effective on 4 April, 2015.

Prior to the enactment of the NMC law, two previous versions of navigation laws coexisted and remained in force: a Navigation Law enacted in 1994 as well as another Navigation Law and Maritime Commerce Law enacted in 1963. Both were repealed by the new NMC law except for certain regulations under the Navigation Law of 1994, which remained in effect. Those regulations have now been furnished by the new regulation published on 4 March, 2015, which offer new guidelines for private sector business opportunities.

Prior to the new regulations of the NMC Law, the legal standing of foreign vessels in Mexican waters operated by foreign navigation companies was not entirely clear and according to some interpretations, only Mexican navigation companies could operate foreign-flagged vessels in Mexico by securing a temporary navigation permit limited to a maximum of two years. These permits are granted for a period of three months and can be renewed up to seven times. If the vessel stays more than two years in Mexican waters, it has to be flagged as Mexican, but certain exceptions may apply for highly specialized vessels, including those dedicated to oil and gas activities.

It was, however, possible for foreign navigation companies to operate foreign-flagged naval artifacts, such as drilling rigs and production platforms under temporary authorizations. This confusing legal structure led foreigners to implement complex corporate and tax structures involving incorporation of Mexican navigation companies to hold permits to operate foreign-flagged vessels and still comply with restrictions on foreign investment provided by the law.

The new regulations to the NMC law provide a much clearer process to allow foreign entities to secure permits to operate foreign-flagged vessels and naval artifacts, such as rigs and production platforms. Although foreign navigation companies will continue to face some restrictions, these will not represent a significant obstacle to their business activities. Moreover, the new regulations provide specific treatment for vessels and naval artifacts dedicated to oil and gas activities, including its regulation of navigation and permanency in Mexican waters, safety and inspection, crew training, and prevention of pollution caused by hydrocarbons, among other matters critically important to prepare an efficient business plan.

Article 40 of the NMC law provides that “the operation and exploitation of vessels in interior and coastal navigation is reserved to Mexican navigation companies with Mexican vessels”. However, an exception is provided in case of the lack of existence of available Mexican vessels in equal technical conditions or in case of public interest, where it is possible to grant temporary permits for coastal navigation in favor of Mexican navigation companies with foreign vessels.

Moreover, Article 41 of the NMC law provides that “having conducted the bidding process with the preference provided under items I and II of the above Article, a permit may be granted for a new procedure including foreign navigation companies with foreign vessels.” It is important to mention that prior the enactment of the new regulations to the NMC law, there was no clear procedure provided to include foreign navigation companies with foreign vessels and therefore to issue temporary navigation permits in favor of foreign navigation companies with foreign vessels, as provided under Article 41.

Now, the new regulations to the NMC law, provide under Article 226 that, “the foreign navigation companies, in order to exploit and operate foreign vessels in coastal navigation, will require a temporary navigation permit according to Article 41 of the NMC law…”.

In light of the above, the possibility for a foreign navigation company to apply for a temporary navigation permit to operate foreign vessels in coastal Mexican waters has greater clarity than under the previous regulation. It is provided, however, that the Maritime Transportation Industrial Chamber must be notified as to the application of any permit, such that the chamber may indicate the availability of a Mexican vessel with the same technical capabilities. A general notice must be served to Mexican navigation companies so they can exercise their preferential right granted under Article 40 of the NMC law, as outlined above.

In conclusion, if a foreign navigation company applies for a temporary navigation permit to operate a foreign vessel in Mexican coastal waters, the procedure described above shall be conducted and all the conditions under Article 41 of the NMC law and under Article 226 of its new regulations must be complied with, so the corresponding authority can issue a navigation permit, even if it is a foreign navigation company with a foreign vessel.

OTHER OPPORTUNITIES IN MEXICO’S MARITIME SECTOR

Another important activity that is expected to be further developed in Mexico is ship building. This is also reflected in the new regulations to the NMC law, which added specific provisions and standards for such activities, including the granting of authorizations for shipyards to operate in Mexico.

The Mexican government’s effort to harmonize all sectors involved or related with the new energy industry has been remarkable, and the maritime sector constitutes clear evidence of this.

In addition to the enactment of the regulations to the NMC law, the federal government aims to foster and promote the sector. Last year, it announced a plan to update the applicable regulatory framework to increase the legal certainty in connection with the merchant marine; extend and modernize port infrastructure; and modernize the maritime fleet, focused on highly specialized equipment for the oil and gas sector. The plan also includes substantial investment.

Companies interested in participating in maritime business opportunities in Mexico will need to fully understand and be well advised of the Mexican maritime regulatory framework, including its recent developments, in order to carry out an effective business plan and implement the most efficient corporate and tax structures.

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About the authors

Benjamin Torres is a partner at Baker & McKenzie and head of the firm’s energy, mining and infrastructure practice in Mexico.

Hector Medina is an associate in the firm’s real estate group, and a member of the mining, energy and infrastructure practice group.