(Corrects Teodora Barone's title in 17th paragraph to "equity capital markets head at UBS BB" instead of "UBS BB executive director")

By Tatiana Bautzer

SAO PAULO, Dec 27 (Reuters) - After a sharp drop in Latin American deals in 2022, bankers expect a slow recovery next year, led by M&A. IPOs may take longer to resume, due to high global interest rates.

The volume of M&A deals in Latin America fell 35% this year, to $86 billion, according to Refinitiv data.

Roderick Greenlees, global investment banking head at Itau Unibanco Holding SA ITUB4.SA , said the total value of M&A, although lower than the record year of 2021, was within historical range in the years before.

Bankers predict M&A volumes will grow up to 20% in the region next year as Latin America becomes more relevant among emerging markets. Many emerging market investors have already backed out of Russia due to the war in Ukraine, and are now reducing exposure to China, worried over the impact of erratic COVID policies, tension with Washington and opaque finances of Chinese firms.

Latin America has a great opportunity to increase its share among emerging markets, said Latam M&A co-head at Citigroup Nicolas Roca.

"The volatility related to elections in the region tends to be short lived and won't affect this trend," he said, citing the example of market improvement in Chile a year after the election of leftist Gabriel Boric.

Investors are also awaiting economic policy proposals from Brazil's President-elect Luiz Inacio Lula da Silva, the latest leftist elected in the region after Colombia's Gustavo Petro, Roca said. Lula takes office on Jan. 1 and has announced that party loyalist Fernando Haddad will be his finance minister.

HEALTHCARE, ENERGY

For the second year in a row, healthcare deals were among the largest in the region.

The acquisition of Brazilian insurer Sul America SA SULA11.SA by hospital chain Rede D'Or Sao Luiz SA RDOR3.SA for $3.1 billion in a stock deal highlighted the activity in the industry. The $2.1 billion acquisition of mall operator BR Malls by Aliansce Sonae ALSO3.SA began as an unsolicited offer, a kind of deal that was unusual in Brazil a short time ago.

Energy should continue to be a very active industry, especially renewable energy and transmission assets, said Daniel Bassan, CEO of UBS BB.

Fabio Medeiros, head of investment banking in Brazil for Morgan Stanley, also sees potential consolidation among smaller oil companies that have grown over the last years, acquiring assets sold by state-owned oil company Petrobras PETR4.SA . Lula is expected to halt divestitures of state assets.

High interest rates and credit delinquencies are seen motivating retail deals that have been slowly growing over the last months, UBS BB's Bassan said.

IPOS ON THE BACK BURNER

The return of initial public offerings in 2023 seems more difficult, sources said.

Share offerings fell 61% in Latin America this year to $13.4 billion, according to Refinitiv data through December 26. Brazilian investors have been plowing money into fixed income assets as benchmark interest rates reached 13.75%.

Although rates are also rising in other developed markets, Latin America is now back on international investors' radar after they retreated from other large markets, said Teodora Barone, equity capital markets head at UBS BB.

The first IPO of the year should be the listing of energy assets owned in Brazil by China's Three Gorges.

Sanitation companies may resume their listing intentions if the Lula government keeps recent laws that regulate the industry and allowed higher volume of private investment.

M&A League Table 2022- Latin America Financial advisor

Volume (US$ million) Number of deals

Itau Unibanco

15,372

42 Banco BTG Pactual

13,911

71 Rothschild & Co

13,882

24 Banco Bradesco SA

13,146

58 Citi

10,605

14 Morgan Stanley

8,857

13 Lazard

7,404

17 JPMorgan

6,184

15 Santander CIB

5,996

35 Scotiabank

5,694

9

Total

88,026

1,354 Source: Refinitiv. YTD data through December 26
Reporting by Tatiana Bautzer Editing by Peter Graff