Category: Brazil

Private equity in LatAm, and particularly in Brazil, is set to continue growing after the global meltdown halted investor appetite. Carlyle Group co-founder David Rubenstein is bullish on Brazil as investors’ risk aversion subdues and he expects assets under management in the region to increase. Other PE professionals attending last week’s Latin American Venture Capital Association (Lavca) conference in New York agree that activity will soon heat up in other LatAm countries too. Colombia-based Altra Investments director Dario Duran, tells LatinFinance that the fundraising environment is starting to improve and that pension funds, for example, are beginning to invest as the valuations of potential targets increase, but stay below pre-crisis levels. “Before the crisis, valuations were at 7x-8x Ebitda. Things are looking better now, but multiples are still around 5x-6x Ebitda across the board. This is the time to invest,” he says. Altra, which has $180m is assets under management, focuses on Colombia and Peru, and prefers companies that cater to domestic markets. Limited partners, meanwhile, say they favor regional funds over country-specific vehicles, and plan to increase exposure to LatAm. For instance, Scott Voss, a partner at Boston-based HarbourVest Partners, says the firm, which in July made a primary commitment in LatAm fund it does not identify, plans to boost exposure to Brazil and “other LatAm countries” in the next 2-3 years. He explains the firm already invests more in LatAm than in China or India. Mexico is less favored by international firms, with Mexico City-based bankers rumoring that Carlyle for one is retreating from that market.

Chilean paper and pulp producer CMPC says it plans to issue up to $500m in bonds and up to $500m in equity to pay for Fibria’s Guaiba unit in Brazil. Chilean research shop Celfin capital says CMPC can afford this, given its low debt profile, high cash flow, and globally-competitive low-cost structure. “In our view the capital increase is ideal, as it allows the firm to maintain present coverage levels, while addressing liquidity issues – and because it would also reverse S&P’s CreditWatch negative outlook,” according to Celfin analysts. It adds that in its view CMPC’s financial profile could support the capital increase, since as it has $2.0bn in financial liabilities, $576.5m in cash and equivalents and net debt of $1.4bn.

Brazil’s Itau BBA has hired 2 Credit Suisse bankers to bolster its burgeoning global equities platform. Chris Egan, a Sao Paulo-based MD at Credit Suisse in charge of the Brazil shop’s international sales and trading effort, will become global head of equity, reporting to Jean-Marc Etlin, head of the investment bank, say people familiar with the move. Reporting to Egan out of New York is Kevin Hard, the former head of Credit Suisse’s international sales and trading desk, who has been tapped to lead Itau’s international equities distribution platform that includes offices in Asia, the Middle East and Europe. Etlin’s 3 main deputies now include Egan, Andre Kok, who is in charge of investment banking, and Alexandre Aoude, head of fixed income. Egan replaces Roberto Nishikawa, Itau BBA’s head of equities, who is moving to the parent bank to run a newly consolidated prime brokerage business, targeting Brazil-based local and international asset managers.

Moody’s has raised Brazil to Baa3 with a positive outlook from Ba1, giving the sovereign an important third investment grade rating. “The country’s shock absorption capacity, including the authorities’ policy response capability, points to a material improvement in Brazil’s sovereign credit profile,” says Mauro Leos, Moody’s regional credit officer for LatAm. “Evidence of strong economic and financial resilience, features typically associated with investment-grade sovereign credits, can be seen in the modest and short-lived contraction in GDP, minimal weakening in the country’s international reserve position, moderate deterioration in the government debt indicators and lack of financial stress in the banking system,” he adds. According to Moody’s, Brazil will this year perform better than several investment-grade countries and the agency says it is an “ordinal winner” of the global financial turmoil. “Reduced sovereign credit risk was a direct result of lower exposure in the government balance sheet to exchange rate and interest rate risks,” says Leos. More upgrades depend on progress with the debt structure, particularly a reduction of rollover risk by lengthening average maturities. Moody’s also notes that authorities need to remove obstacles to Brazil’s economic potential. A correction of fiscal imbalances that have led to persistently high government financing requirements is crucial, adds Leos. Fitch and S&P already rate Brazil BBB minus. On the corporate side, Moody’s raised Telemar and Ambev to Baa2.

Brazilian meatpacker Marfrig says its board has approved plans to sell up to 232m new shares through an equity offering. If the block of shares, which can be upsized by 15% is priced at BRL18.00, the deal could raise BRL4.8bn. Marfrig has tapped Bradesco BBI to lead the transaction, with Credit Suisse and Itau BBA as joint leads. If exercised in its entirety, the share sale would bring Marfrig’s total number of outstanding shares to 500m, according to the statement. The meatpacker is in the process of acquiring local competitor Seara Alimentos for $900m, which was announced last week. It also says it is acquiring 51% of Uruguayan leather producer Grupo Zenda for $49.5m. Zenda has outlets in Argentina, Mexico, the US, Germany, South Africa, Chile and Hong Kong. Marfrig says in a statement it sees significant benefits to its bottom line through the acquisition, including economies of scale.

Moody’s has downgraded Lupatech to B1 from Ba3 on a global scale and to Baa2.br from A3.br on the Brazilian national scale. It also cut to B2 from Ba3 the foreign currency rating on $275m in senior unsecured perpetual notes issued by Lupatech Finance. “The 2-notch downgrade of the senior unsecured notes takes into consideration the increased level of secured debt in Lupatech’s debt structure pro-forma for the new loans granted and debentures acquired by the Brazilian Development Bank – BNDES, which are senior to the rated perpetual notes and will represent a substantial portion of the company’s total debt,” says the agency. The downgrade reflects an expectation of the company’s limited ability to reduce leverage over the near term, as a result of weakened operating margins which Moody’s expects will remain constrained by high-cost inventories and operational inefficiencies from current low capacity utilization in all 3 divisions. Net debt to Ebitda and debt to capitalization reached 5.5x and 83%, respectively, as of June 30, and Moody’s expects leverage to peak at 2009 year-end as 2008 quarters roll off, with net debt to Ebitda of around 7x. Headquartered in Caxias do Sul, Brazil, Lupatech is an equipment manufacturer and service provider to the oil & gas industry in Brazil, besides producing industrial valves and casting parts.

Chicago-based Equity International, which holds stakes in several Brazilian real estate companies, among them homebuilders Gafisa and Tenda, is interested in increasing its investments in the country. “We want to pour more money into Brazil,” says Ira Chaplik, COO and chief strategic officer, during a Lavca investor roundtable in New York Monday. He explains that while some 7m families in Brazil need affordable, entry-level homes, local homebuilders are only able to deliver half that amount. As the middle class continues to grow, he sees opportunity for homebuilders to increase business. So much so, that he says Equity International, which has $1.2bn in assets under management and tends to make short-term investments, is considering going long term with these types of portfolio companies. “We love Brazil long-term. In the US there is such little demand for real estate due to oversupply, but in Brazil we see the opposite,” Chaplik explains.

GMAC has priced ABS transactions totaling $140m in Brazil and Ecuador. In Brazil, the lender sold a BRL200m 2-year securitization of dealer floor plan loans, which a company official claims to be the first of its kind in Brazil and is GMAC first public securitization there. The deal will close the first week of October and is targeting an interest rate of DI plus up to 4.0%, but is heard pricing at the DI plus 3.0%. HSBC managed the sale, rated AAA on a national scale. The deal follows a $30m securitization of retail auto loans in Ecuador closed September 11, GMAC’s third in that market. A $12m 2-year tranche priced at 8%, and an $18m 54-month tranche priced at 9.25%. Banco Pichincha led the deal, rated AAA on a national scale.