EM bond funds attracted inflows of $53.1bn in 2010, up from only $9.5bn in 2009, according to EPFR Global. “Among EM bond funds, those specializing in Asian markets and those with local currency mandates stood out with both sub-groups having their best years on record,” it says. Lipper, meanwhile, shows that all bond funds ended the year with positive performance. Global income funds are up 7.07%, international income funds gained 5.99% and EM debt funds gained 12.00%.
Yearly Archives: 2011
Posted inDaily Brief
PE Applauds Brazil Tax Cut
The PE industry has welcomed Brazil’s plan to cut taxes on foreign investments in PE funds and some stock investments. Investors look likely return to the Fundos de Investimento em Participacoes (FIPs) local PE vehicle following news that the IOF tax would drop to 2% from 6% for foreign exchange transactions by overseas investors into FIPs and VC funds. “The reduction is very positive,” says John Michael Streithorst, GM for PE at Banco Modal. “I would hope that this is a sign that [president Dilma Rousseff] is sensitive to private sector investment and is making the distinction between long-term investment capital and short-term speculative flows,” says Cate Ambrose, president of the Latin American Venture Capital Association. “It shows there is greater sophistication among policymakers and regulators to understand that PE is investing in companies, providing growth capital rather than speculating on the value of the real,” she adds. The government had increased the IOF tax to 6% from 2% last year via 2 hikes, hoping to staunch a flood of short-term money into the country, which was exacerbating BRL appreciation. PE players questioned why foreign investments into FIPs were subject to the tax, arguing that PE is long-term. Some foreign investors quickly abandoned the FIP vehicle in favor of investing directly in Brazilian assets, explains Andrea Bazzo, an attorney with Sao Paulo law firm Mattos Filho. She notes that by investing directly, foreign investors would be subject to a capital gains tax of a minimum of 15% when they eventually exited. However, they switched to this strategy with the expectation that the government would eventually reduce the tax, she says. Now that the IOF has dropped to 2%, these investors should migrate back to FIPs to avoid paying capital gains tax.
Posted inDaily Brief
Santander Brasil Closes DPR Deal
Santander Brasil has closed a $250m 2016 securitization of diversified payment rights (DPR), according to sources familiar with the matter. The private transaction pays a spread over Libor, which the company and the banks involved declined to disclose, or did not return requests for comment. Sumitomo Mitsui and WestLB managed the sale, and are understood to have bought the transaction. The deal is a securitization of existing and future dollar and euro-denominated DPRs originated by Santander, which are mostly linked to remittance flow. Santander Brasil processed approximately $26.4bn in dollars and euro-denominated remittances for 2009 and $22.9bn through October 2010, according to Fitch, which rates the deal A. The mark reflects the strength of Santander’s DPR flows and the legal structure of the transaction, the agency says. Santander Brasil has raised about $1bn on its current DPR securitization shelf, according to Fitch.
Posted inDaily Brief
Deals of the Year Winners Announced
Biggest, tightest, longest, cheapest. Superlatives abound when describing LatAm capital markets and advisory for the last 12 months, and many bankers expect good times to continue. Emboldened by the region’s undiminished progress through the worst global crisis since the 1930s, the sell side capitalized on the opportunity. Although overall revenue did not hit the 2007 high, financiers region-wide predict a return to that golden year. This makes judging the LatinFinance Deals of the Year particularly challenging, as most categories have more than two very strong candidates. Nonetheless, through an intensive evaluation process supported by our unrivalled access to decision makers at the leading issuers, investors, banks and law firms, we have picked our winners. Veterans distinguished themselves – there are several winners of prior years in the mix – while newcomers have made inroads. For full details, see http://www.latinfinance.com/Articles/2739233/In_Depth/DEALS_OF_THE_YEAR_RESULTS.html
Posted inWeb Articles
2nd Latin America Europe Investors Forum (LA-EIF)
The 2nd Latin America Europe Investors Forum (LA-EIF) will gather Latin America’s leading companies and investment funds with Europe’s most prominent investors, companies and intermediaries for an exclusive and in-depth conference examining the full spectrum of investment, trade and business opportunities in Latin America.
Posted inDaily Brief
EM Bonds Seen Tighter in 2011: BAML
EM bond spreads should tighten during 2011, though EM corporates will return less than US high-yield, according to Bank of America Merrill Lynch (BAML). EM corporate bonds should yield around 7% this year, versus 10% in US high yield, the bank says. “Investment-grade and high-yield credit spreads will tighten further, as liquidity in the credit markets should continue to drive returns in the year ahead,” BAML says. The bank sees spreads in EM going to 275bp at year-end 2011 from 355bp in December, with EM high grade hitting 180bp (from 245bp) and EM high yield reaching 520bp (from 665bp). This compares to a 60bp tightening in US high grade, to 120bp, and a 120bp-150bp tightening in US high yield, to reach 450bp-480bp.
Posted inDaily Brief
LatAm Growth Seen Slowing
LatAm will slow to a more sustainable rate of economic growth in 2011, according to Moody’s. The region is forecast to expand 4.5% in 2011, down from the 6.0% enjoyed in 2010, as external demand for LatAm exports reduces and foreign investment moderates. Although the region will be influenced by global economic weakness, solid fundamentals in the domestic market will keep it from derailing. Growth will continue to be led by Southern Cone economies, followed by Mexico and Central America. Asia represents an increasing market for LatAm exports at the expense of US and European market share. Chile is expected to grow the fastest in 2011, at 6%, after experiencing 5.3% expansion in 2010, mostly due to extended post-earthquake reconstruction. Peru is next with a projected rise of 5.6%, after surging 8.6% in 2010 as a result of aggressive fiscal and monetary policy, on top of government consumption. Uruguay will expand by 5% in 2011 after growing 8.7% in 2010, as tighter monetary policy curbs domestic consumption, Moody’s predicts. Brazil’s GDP will also gain 5.0% in 2011 after 7.3% growth in 2010. Argentina will grow by 5.0% in 2011 as well, after expanding 8.5%. Colombia is expected to grow at 4.4%, in line with 4.5% expansion in 2010. Mexico will only expand 3.3% in 2011 after 5.0% growth in 2010, as its economy loses steam as a result of global deceleration, low production capacity and limited policy leeway. Venezuela will add around 3.0% in 2011, after contracting 1.4% in 2010, as macroeconomic fundamentals deteriorated and private investment fell amid fears of government takeovers. The region remains one of the most attractive for foreign investment, and as a result was flooded by capital inflows.
Posted inDaily Brief
Moody’s Raises Outlook for Mexico Banks
Moody’s has lifted the outlook for the Mexican banking system to stable from negative. The change is a result of the banks’ strengthened capital and reserves, and solid earnings during the economic crisis. Asset quality has also improved, and the banks enjoy sound funding and liquidity, adds the agency. David Olivares-Villagomez, analyst at Moody’s, says Mexican banks’ strengthened capacity to absorb losses means that even under a severe stress scenario they would have enough resources. The banks’ loan book is funded largely by local, inexpensive core deposits. Low reliance on market funding leaves financial institutions relatively protected from any deterioration in international markets. Earnings remain robust and profitability has been relatively stable throughout the recession. However, Moody’s adds that Mexican banks are still reluctant to lend, which could stifle growth. Other challenges include high loan concentration and continuing low interest rates, which could decrease profit margins. Moody’s adds that the operating environment has not improved much during 2010. In 2011 the economy is expected to grow, albeit more slowly than elsewhere in LatAm.
Posted inDaily Brief
IDB Lends to Ecuador
Ecuador is getting a $78m loan from the IDB to improve its births registration and citizens’ identification with the creation of new documentation centers. The loan is for a 25-year term, with a 3-year grace period, priced basis Libor. The government of Ecuador will provide $15.5m in additional local counterpart funds.
Posted inDaily Brief
Venezuela Devalues Currency
Venezuela has weakened the exchange rate on so-called essential goods such as food and medicine by 40% to VEB4.3/USD, unifying its fixed foreign exchange rates. Imports of essential goods were previously bought at VEB2.6 per dollar. The move marks the second devaluation from Venezuela in 12 months. Sitme, the state-run exchange system that replaced the parallel market, has traded on average about $36m per day at an average rate of VEB5.3 per dollar, according to the government. President Chavez said at the weekend that Venezuela would return to growth this year, following a tough 2010.