Category: Brazil

Brazilian electricity generator Cemig is expected to keep a lid on leverage, according to S&P, which assigns a BB rating to the company. “The stable outlook reflects our expectations that Cemig and its subsidiaries will continue its debt liability management to maintain its financial profile commensurate with the ratings,” says the agency. It adds that weakening in the financial profile, due to large debt-funded acquisitions and/or a high short-term debt exposure, would put downward pressure on ratings. “Conversely, a further sustainable improvement in Cemig and subsidiaries’ financial profiles could result in some ratings upside,” adds S&P.

India-based sugar producer company Shree Renuka says it is entering the Brazilian market by acquiring sugar refinery Vale do Ivai for $240m. Out of that amount, Shree says it is paying $82m in cash. The balance is debt Shree Renuka will assume and pay over an 8-year period. The acquisition includes 2 sugar and ethanol production facilities located in the state of Parana with a combined cane crushing capacity of 3.1m tons per year, the buyer says. Indian investment bank Motilal Oswal advised the buyer on the deal. It is expected to close within 45 days.

Toll-road operator Ecorodovias has begun its road show, which will last until Friday, to promote its bond issue, with which it plans to raise BRL600m in three tranches. One of the tranches will mature in 2013 and the other 2 in 2015, according to a prospectus. The 2013 will pay a maximum spread of 2.0% over DI. The second and third tranches’ will be pegged to NTN-B inflation-linked national treasury notes and have a maximum spread of 250bp. Proceeds from the issuance will be used to pay down BRL406.7m in promissory notes and to capitalize Ecopistas, the company unit that manages and operates the Ayrton Senna-Carvalho Pinto highway system. Ecorodovias, one of the largest highway managers and operators in Brazil, is a unit of Italy’s Impregilo. Itau is managing the sale.

Sao Paulo water utility Sabesp is planning to place BRL826m in 11-year bonds privately with the BNDES and BNDESpar, according to a company finance official, following approval from the Brazilian state development bank. The amount is expected to be spread out over 3 transactions of approximately BRL275m each, the first of which could close by year-end, the official says. Each issuance would be divided into 2 tranches paying TJLP+1.92% and another paying IPCA+9.79%. Proceeds will fund Sabesp’s BRL1bn investment plan, including 5 projects to build and upgrade waste systems, and make water systems more efficient and less energy-intensive. Separately, Sabesp is in the process of completing a BRL600m 2014 bond in the public markets through Banco do Brasil. That A+ transaction is set to pay DI plus up to 3.5%.

US-based diversified industrial services company Harsco says it is acquiring construction and infrastructure company Esco Interamerica, which has operations in Mexico, Chile, Peru, Brazil and 6 other countries in the region. Terms of the deal are not being disclosed, but Esco in 2008 had revenue of about $50m, according to the buyer. Harsco also says the acquisition will allow it to expand in Brazil, where multi-billion dollar investments in public infrastructure are anticipated. A company spokesman says Jones Day acted as legal advisor and PricewaterhouseCoopers as financial advisor. Harsco has a market cap of $2.7bn and operates in about 40 countries.

Gerdau is preparing a benchmark-sized 2019 bond, expected to price next week. The Brazilian steelmaker will begin a 2-team roadshow Friday in Switzerland, visiting London and Los Angeles before wrapping up Tuesday in Boston and New York. The transaction is set to follow as soon as Wednesday. The issue is expected to be large, as a whopping 6 banks have joint books: BofA-Merrill Lynch, Citi, HSBC, Itau, JPMorgan and Santander. In the group, HSBC and Santander are active bookrunners, and Itau is described by the group as “quasi-active.” The following 8 banks were also named as co-managers: Banco do Brasil, BBVA, BNP Paribas, Bradesco, Calyon, Goldman Sachs, Morgan Stanley and Scotia. The BBB minus deal is to be issued by Gerdau Holdings and guaranteed by several units, including Gerdau Ameristeel, which has funded separately in the past. Proceeds are marked for refinancing debt. Gerdau plans to invest BRL9.5bn in the next 5 years as expected demand for its products rises. Gerdau’s 7.25% 2017 bond was heard trading to yield around 6.90% Tuesday, with rival CSN’s 2019 at around 6.95%. Arcelor Mittal’s 2019 was trading to yield around 7.10%. Gerdau retapped its 2017 for $500m to yield 6.875% in April 2008, its last visit to the cross-border markets, through ABN, HSBC and JPMorgan. “In addition to its strong business position (Gerdau is one of the largest steel producers in the Americas) and resilient credit quality, Gerdau stands out for its strong liquidity position, significant gross debt reduction and sound investment plan,” says Fitch in its rating report on the new issue.

Neoenergia, the Brazilian integrated power company, is scanning the horizon for ways to deploy a BRL2.5bn warchest, says Erik Breyer, CFO. “We are looking for opportunities to invest in the [Brazilian] power sector,” he says. Breyer notes it is the company’s standard practice to look at any and all investment opportunities, whether greenfield or acquisition of companies and operating assets. Neoenergia has been proactively looking to invest aggressively in the past 2 years, during which it has bought greenfield concessions. With debt of around BRL5.0bn, all denominated in BRL, LTM Ebitda of BRL2.6bn and cash of BRL2.5bn, Neoenergia’s net debt to Ebitda stands at just below 1x, says Breyer. That allows the company to lever up substantially should it need to for a large acquisition. “We have the cash and the balance sheet [to make investments],” says Breyer. Among power assets located in the Northeast of Brazil rumored to be candidates for sale are Equatorial’s Cemar and Geranorte. Executives at Equatorial decline to state whether they are sellers, and emphasize their interest in acquiring and managing power assets in Brazil. Neoenergia, which is owned by Iberdrola (39%), Previ (49%) and Banco do Brasil (12%), controls the larger Northeastern power assets Cosern, Celpe and Coelba, as well as assets in 5 other states. Sector executives are unanimous in noting there are several live discussions in the sector that will drive a substantial consolidation, though bankers complain there is too much talk and not enough trigger pulling. “The deals will happen, but at the pace of the utilities, not bankers,” says Breyer. The CFO expects to begin accessing the local bond market in 2010 to extend maturities on debt, provided conditions are welcoming. While he sees no urgent need to tap – the bulk of debentures begin maturing in 2012 – the company is focused on managing the yield curve and spacing to avoid clumps of maturing debt.

Brazilian power generation and distribution company Light is planning on buying back up to 6.6m shares for its employee stock options plan. The amount represents 6.73% of the company’s public float and 3.23% of the company’s total ordinary share count. At Light’s Monday closing price of BRL24.79, the buyback would be valued at BRL163.6m. Light shares closed up 0.65% Monday. Ativa, BTG Pactual, Credit Suisse, Morgan Stanley and JPMorgan are the brokers handling the repurchase.

Brazil’s Telesp is planning to issue promissory notes for as much as BRL6bn to acquire 100% of GVT, it says in a filing with the local securities regulator. In October Telesp offered BRL48 per share to acquire the telecom company, topping Vivendi’s BRL42 per share bid. Telesp says its board has authorized issuing up to 600 promissory notes worth up to BRL10m each. The expected maturity of the notes is not stated, but Telesp says it would pay 109% of the DI rate at maturity.

Brazil petrochemical company Braskem and Mexican minority partner Idesa have been awarded Pemex Gas’ $2.5bn Etileno XXI project. A Braskem spokeswoman says that the company will finance the project with 70% debt and 30% equity, but that this is not yet confirmed, as the final structure of the investment is still being discussed. She adds that Braskem is considering welcoming another company into its consortium. It plans to be the majority owner of the project, with a stake of at least 60%, while Idesa would hold about 20%. The project entails the acquisition of ethane at competitive prices for 20 years, construction of a cracker to produce 1m tons of ethane a year for Pemex, and the construction of 3 polyethylene plants, according to Braskem.