Yearly Archives: 2008

While the availability of debt financing to LatAm from international sources has slowed, the region’s banks have picked up much of the slack, according to Nicholas Brady, former US Treasury Secretary. He adds that emerging markets are an important part of global resilience thanks to a combination of better policies and stronger economic performance. “Mexico will likely be the most affected by a slowdown in the US since approximately 90% of Mexico’s exports go to the US,” says Brady. “And if commodity prices go into a steep decline, this will affect those countries more dependent on commodities for economic growth, such as Brazil, Argentina, Peru, and Chile,” he adds. In addition, LatAm has no subprime mortgages, and the region’s banks stopped short of engaging in highly structured, over-leveraged deals. “Banking system reforms led to solid local banks driving credit expansion, but with better asset quality than that of the United States,” adds the official. One of Brady’s firm, Darby’s, portfolio companies in Colombia, which is seeking financing, received multiple offers from international banks nine months ago. While those banks have withdrawn their offers, the gap has been filled by Colombian banks that have committed to complete the transaction, he adds.

Global equity investors, including hedge funds and asset managers, are piling into vehicles dedicated to buying and managing agricultural operations and rural land assets. The deals are being done on a private basis, through private placements and individual fundraisings. “Well over $1bn [in equity capital] has been raised or is being targeted in the past three months for this type of investment,” says a senior ECM executive at a Brazil-based bank. “People like the commodity story in Brazil,” adds a Brazil-based private equity manager. “They’re buying the commodity itself, a producer of commodities or the land that can be used for production.” Among such entities are MSU, an Argentine outfit heard to have raised $200m with London hedge fund Altima for Brazil land purchases. Other deals have been done through direct equity investments in existing companies, capital raises for startups, and local private equity vehicles, called FIPs, raised privately to seek out deals in specified asset classes.

The pace of loan syndications for corporate and financial institutions is slowing due to higher lending costs and increasingly reluctant credit committees, but project finance has barely been affected, say syndication bankers. “There’s an unabated appetite for [lending to] high quality projects right now,” says Thomas Friebel, head of LatAm loan syndications at WestLB. Lenders are shifting attention to an active project finance pipeline as corporate borrowers show less willingness to bend on pricing and either opt to wait out rough pricing conditions or attempt deals at overly ambitious levels. As lenders’ return models change to reflect new credit conditions, however, pricing has also risen for project finance, say bankers. But unlike the corporate market, liquidity is still readily available. “People feel the collateral package protects them,” says Jozef Henriquez, head of loan syndications at the IDB. “With long-term financings, they take a different approach [from corporate deals],” he adds.

Latin America cannot escape the storm ripping through developed markets unscathed, warns Nicholas Brady, former US treasury secretary. “What is happening in this country can’t help but affect Latin America’s future,” says Brady in a speech at the LatinFinance 20th Anniversary Gala Dinner & Awards Ceremony in Miami Saturday night. “Because we operate in an increasingly global economy, it’s impossible for Latin America to avoid some collateral damage from our present malaise,” he adds. Brady compared the current US economic duress to the major systemic crisis the economy faced two decades ago when he was treasury secretary. “In 1989 and ‘90 remedial steps were called for, and we took them. And today with a banking system that faces systemic predicaments and an economy that may be on the brink of the deepest recession in a generation, that’s where we are again,” Brady says. However, he notes, while two decades ago it was possible to identify the borrowers and lenders, as well as their capacity, now it is not. “I’d recommend that we do what we did with the commission that President Reagan asked me to chair after the stock market crash in 1987 – namely to identify the market participants, describe the actions they took, figure out the weaknesses in the system, and put forward a solution,” Brady says. He adds that the process of de-leveraging and re-pricing will take time, but adds that a great deal of the success in the ’89-’90 timeframe came from prompt action. The official also warned against over regulating in response.