Category: Brazil

Brazil has wasted no time since gaining the third of 3 investment-grade ratings, selling $1.25bn in new 2041 bonds to extend its yield curve with the longest duration from LatAm so far this year. The Baa3/BBB minus bond priced at 97.498 with a 5.625% coupon, to yield 5.800%, or UST plus 175bp. According to a banker close to the transaction, the new issue priced 8bp over the 2037 and the curve is seen very flat at the long end. The sovereign announced Wednesday morning whispering “high fives” and a size of $1.00bn, and demand reached about $3.50bn-$4.00bn at the time 5.85% area guidance was issued. The book ended up at $5.75bn – apparently including some new high grade names – and the deal was heard 0.5-1.0 point higher in the gray. “It’s attractive compared to the rest of the curve,” says a New York-based EM investor participating, noting he expected it to price through the 2034s and 2037s. “There’s still a dearth of supply of cash bonds,” the investor adds, noting many asset managers around the world may still be under-allocated in EM, adding that a duration bond from a high-quality liquid issuer is especially attractive. “It’s a new 30-year benchmark, so people need to be exposed,” says a banker on the trade. HSBC and Barclays managed the sale, which is understood to be for pre-funding. “It opens up the possibility for top tier names to go at the long end,” says a banker on the deal. “There’s clearly a bid.” Brazil paved the way for yesterday’s trade with a well received $500m July 30 tap of its 7.125% of 2037 bond, the longest dated cross-border LatAm issue since May 2008.

More consolidation is expected in Brazil’s home building sector, says Daniel Kastholm, Fitch’s managing director and head of LatAm corporates. Kastholm explains that highly leveraged Brazilian homebuilders in need of liquidity will be likely targets. Buyers, on the other hand, could be those companies that destocked in response to the crisis to meet demand levels. Kastholm says that credit is still available for potential acquirers. He adds that companies, which had been focusing more on mid and upper-sector housing may start focusing more on lower-income segments. He was speaking Tuesday at an EM panel in New York hosted by Fitch.

Brazil’s development bank will set up a new fund geared toward investing in biotechnology and nanotechnology companies. The BNDES will contribute up to 25% of its resources to the fund with the remaining coming from partner firms. Companies interested in accessing the fund’s cash can apply through the bank’s site. The model for the VC fund is analogous to what the BNDES has done in the private equity space. In August 2008, it set up 3 funds called Brasil Agronegocio, FIP Terra Viva and CRP VII, alongside a group of private equity firms including BRZ Investimentos, DGF Investimentos and CRP Cia. de Participacoes, all geared towards agriculture. It plans to do the same for the forestry and oil & gas sectors. The BNDES says it invests capital in 31 funds worth BRL8bn.

Naspers, the South Africa-based company with major internet holdings in China, Russia and Eastern Europe, has acquired a 91% stake in BuscaPe, a Brazilian e-commerce site, for $340m. The stake belongs to Boston-based private equity firm Great Hill Partners, which is heard to have turned a profit of roughly 8x the equity capital it invested in the company. Through a series of transactions over its 4-year investment, Great Hill deployed some $35m into the company. “We think that Brazil will offer interesting investment opportunities over the next 5-10 years,” Michael Kumin, a partner at Great Hill, tells LatinFinance. At the moment, the fund does not have holdings in LatAm. Its one other investment in Brazil was in a telecom company called Vivax, which it sold to Net Servicos. Nasper is paying for the deal in cash, say people involved in the trade. Goldman Sachs advised Nasper. Citi’s US-based technology investment banking team advised Great Hill.

Brazilian aircraft maker Embraer is out with whispers of mid 6% area on a new 2020 bond, which will be sized at $500m-$600m, say bankers involved in the trade. The company, which wraps up roadshow meetings in Boston and Los Angeles today, has also indicated it will price Thursday. The goal is to show accounts that pricing will likely come closer to 6.500%-6.625% than 7.000% or higher, according to an executive involved. The company is also seen happy to settle for a $500m print if pricing at that level is more suitable. Deutsche Bank and Morgan Stanley are leading the offering.

Morgan Stanley has improved its forecasts for Brazil GDP and the BRL. In 2009, the shop sees GDP flat. It previously thought it would drop 0.5%. In 2010, it now sees GDP increasing 4.8%, from a previous estimate of 3.5%. The BRL’s outlook has also improved, to BRL1.80 per USD from BRL1.90 in 2009 and to BRL1.70 from BRL1.80. The more positive forecasts coincide with higher rates and stronger capital inflows, the shop says. It now expects the central bank to begin hiking the monetary policy rate before mid-2010, around April. Previously it expected hikes to begin in Q2 2010. “With an earlier start to the hiking cycle, we now see policy interest rates at end-2010 at 11.00%, from 10.00% in our previous forecast. The current policy rate is 8.75%,” the shop says. It adds that “looking ahead, our forecast assumes net FDI inflows of $25bn for 2009 as a whole, in line with the central bank’s own working assumption. We look for a FDI recovery to $30bn next year.”

Brazilian homebuilder Brookfield Incorporacoes, formerly known as Brascan, says in a preliminary prospectus it plans to issue 85m shares October 15. At Friday’s closing price of BLR7.96, the offering, which includes 70m primary units and 15m secondary, would raise BRL677m. The company has hired Itau BBA to lead and Credit Suisse, BTG Pactual and Bradesco BBI as joint leads.

Brazilian plane maker Embraer will begin on Tuesday a 2-day roadshow with stops in New York, London, Boston and Los Angeles to market a new 2020 bond of benchmark size. The company last tapped the bond market in October 2006, issuing a $400m 2017 6.375% bond that was quoted Friday at around par. That note should be among the reference points for investors as they mull the new 10.5-year issue, likely to be Wednesday’s business. Deutsche Bank and Morgan Stanley are leading the trade.

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.