It may take a while before investment grade-only investors start piling into Peruvian assets en masse, since most need another endorsement. “Many investors will still need an upgrade from a second ratings agency in order to invest in Peru,” says the head of strategy at a leading US-based shop, adding that the ability to allocate depends on each fund’s covenants. S&P has Peru at BB+, one notch below investment grade, while Moody’s rates it Ba2, two notches below. Fitch yesterday upgraded Peru to BBB minus. S&P is likely to raise Peru in the next 12 months, says Goldman, which notes “the upgrade to investment grade is likely to attract additional investment inflows into Peru in terms of both FDI and portfolio inflows, increasing the already strong pressures for the PES to appreciate.” One tangible benefit for Peru should be increased stability as it lures a higher class investor. “From a risk-reward point of view, it will become a less volatile country because of the nature of the investors that will be entering [the bonds,]” says the head of strategy at the Wall Street firm.
Yearly Archives: 2008
Moody’s Considers Vale Upgrade
Moody’s has put the Baa3 ratings of Vale on review for possible upgrade, including Vale Overseas and Vale Inco, affecting approximately $10bn in debt securities. The Brazilian miner Vale last week walked away from a $90bn acquisition of Switzerland’s Xstrata, which investors feared would have prompted a downgrade. “The review will focus on the sustainable level of earnings and cash flow generation in a more normalized metals cycle and the company’s level of debt within its capital structure,” says Moody’s. “An important part of the analysis will be the company’s capital expenditure plans for growth projects given Vale’s announced $59bn in capital investments over the next five years, of which $11bn is planned for 2008, and the continued capital cost increases being experienced in general across industries given rising material costs and equipment and skilled labor availability challenges,” it adds. Moody’s will also look at other cash use requirements, including dividend payout levels. The Xstrata deal may yet be revived, snuffing out any hopes of an upgrade.
The Latam Borrowers’ & Investors’ Forum (LABIF) Leadership Council
On the fifth anniversary of the Latin American Borrowers and Investors Forum (LABIF) – still Latin America’s only pan-regional debt capital markets forum – LatinFinance is to hold the first LABIF Leadership Council. This more intensive and focused event will bring together the global buy-side with a select group of Latin America’s leading sovereign, blue-chip and tier II issuers including.
Argentina Natural Gas Faces Credit Risk: Fitch
Argentine pipeline companies are being negatively impacted by the natural gas crisis in their country, according to Fitch. The scarcity of natural gas has increased the near-term credit concerns of the two gas transportation companies in Argentina, TGN and TGS. The ongoing challenges faced by these companies include the low probability of domestic tariff increases and continued government influence, the agency says. These risks continue to be factored heavily into the companies’ ratings. TGN faces greater risk as there is a possibility that it will not be paid due to an existing gas transportation agreement. This led Fitch recently to change TGN’s outlook to negative from stable.
White & Case Taps NAFTA Lawyer
Law firm White & Case has hired Andrea Menaker, outgoing chief of the NAFTA arbitration division for the US State Department, as partner in its international arbitration group in Washington. Menaker was also involved in the negotiation of investment and dispute resolution provisions in free trade agreements and bilateral investment treaties, including DR-CAFTA. “We are actively engaged on NAFTA and CAFTA matters, and Andrea’s experience is an ideal match for our clients’ needs,” says Jonathan Hamilton, White & Case partner.
Vale Gets BRL7.3bn BNDES Credit
Brazil’s BNDES national development bank has agreed to provide Vale a 5-year credit line of up to BRL7.3bn. The facility will help finance expansion of Vale’s production capacity in Brazil, a key part of its capital investment budget of $59bn over the next five years. The Brazilian mining giant, which last week halted talks with Xstrata for an up to $90bn takeover of the Swiss company, managed to secure a total of $71bn in commitments from banks to support the transaction if it had gone through. The staggering figure reinforces the fact that high quality corporates with strong relationships still have ready access to cash.
Vene Government Buys Cantv ADS
The Venezuelan government has reached an agreement with global hedge fund management group Renaissance Technologies to purchase 3.5m American Depositary Shares of quasi-sovereign Venezuelan telecom holding Cantv. The shares were valued at $11.27, according to the Venezuela state news agency, making the stake worth close to $40m. Terms of the transaction were not disclosed. According to the news agency, Venezuela is looking to purchase the remaining stocks outstanding. Trading of Cantv shares was suspended Tuesday on the local market to inform traders and stock holders of the purchase. Each ADS represents 7 class D shares of Cantv common stock, the Caracas exchange states. Renaissance manages $30bn in assets, according to its website. With this purchase, the Venezuelan government now controls 90% of the telecom, according to press reports.
Brazil’s Perdigao Acquires Cotoches
Brazilian dairy foods giant Perdigao announced Tuesday the purchase of Cotoches, a milk processing company in Minas Gerais, for BRL54m and the assumption of BRL15m in debt. The acquisition is part of Perdigao’s expansion plan in the local market, the company says. An additional BRL30m will be invested to upgrade Cotoches’ factories into Perdigao’s food safety and quality standards.
Mexican Banks Sound in Downturn, Fitch Says
The Mexican banking system has maintained sound performance, and the outlook remains adequate for the foreseeable future, Fitch says in a report. However, strong loan growth domestically has affected delinquency ratios, and global capital markets conditions put pressure on the cost of credit and funding, as well as liquidity. “While continued asset quality deterioration may be of some concern, banks with the worst-performing retail portfolios are gradually tightening lending acceptance criteria, while risk-adjusted profitability remains sound,” the agency says. Fitch expects adequate performance from the major banks, spurred by continued double-digit loan growth, despite the likelihood that profitability will decline from recent historic highs.
Moody’s Chops Mexico’s GMAC
Moody’s has lowered the ratings of the senior certificates MXMACFW 07U issued under the MXMAC program established by GMAC Financiera in Mexico to Baa3 from A3 on the global scale. The agency also cut the senior certificates MXMACFW 06U of the same program to Baa3 from A3 in the global scale and placed it on review for further downgrade. “This rating action is based on the continued weaker than expected performance of the collateral assigned to the transaction,” says Moody’s.