Category: Brazil

The board of Brazilian real-estate developer Cyrela Brazil Realty has authorized the company to raise BRL350m in debt. It does not specify the type of instrument, though it does note that it has hired Bradesco to lead a 5-year credit facility. “The [specific] characteristics of this raising of funds shall be [determined] at an opportune time during a board of directors’ meeting,” Cyrela says. It sold BRL500m in 2018 debentures in April 2008. Fellow real estate developer Gafisa has recently announced plans to come to the market for BRL250m in 2011s. Cyrela’s competitor Gafisa said last week it plans to raise BRL250m in 2-year debentures to boost its cash position as it ramps up production. Analysts view the move by Gafisa as a positive one for its short term capex needs, though they expect the company to continue considering an equity offering, whose purposes would include deleveraging, if its valuations improve.

Brazilian beef producer Minerva says it plans to raise between BRL100m-BRL160m through a private share sale. The company says its controlling shareholder, which according to Economatica is called Vdq Holdings and holds 68% of the company’s shares, will participate in the offering to maintain its current stake. The funds are being used to pay down debt and for working capital for its greenfield projects. Minerva went public in July 2007 via Credit Suisse and Itau BBA. It also has $200m in outstanding 9.5% 2017 bonds, which it last reopened in February 2007.

Guilherme Pedras, head of the Brazilian treasury’s public debt operations department, has been tapped to join the IMF, according to the finance ministry. Pedras will be involved in projects that “assist other countries in managing public debt, based on the knowledge acquired at the national treasury as a public servant,” it says. He will be replaced by his deputy head Fernando Garrido.

Brazilian companies’ liquidity should continue to deteriorate in the next 12 months, Fitch says, though the risks associated with this tight liquidity are becoming more moderate. In a report, the agency explains that a fall in operational cash generation, greater indebtedness, weaker liquidity and limited access to more costly, shorter maturity credit is expected to continue to pressure the payment capacity of various Brazilian companies for at least the next year. Most Brazilian corporates are slowly regaining access to both local and international capital markets and bank credit lines are showing clear signs of recovery, says Fitch. But it expects to see a greater dependency on refinancing sources next year given the larger volume of debt to be amortized, particularly for more cyclical sectors and businesses based on commodities and exports. A sustainable return of credit lines and greater access to the debt market will be an important driver in minimizing greater refinancing risks and consequent pressure for new downgrades, according to the report.

Reopening Brazil’s global BRL debt issuance is an option Brazil’s Treasury is considering, though it is not a priority, Paulo Valle, Brazil’s deputy treasury secretary, tells LatinFinance. After raising $1.75bn in new 2019 dollar debt earlier this year, Brazil re-opened the long end of the curve for LatAm issuers in July with a $500m retap of its dollar 2037s. The move has led the market to speculate the sovereign may be considering adding to its BRL-denominated positions. “It’s not something we are foreseeing, but if demand was there, we would have the ability to do it,” the official says. He explains Brazil has three BRL points, each with over $1bn, which is an ideal amount. He notes that Brazil tries to match the internal and external BRL yield curves, and that now there is more investor interest in buying BRL bonds in the domestic market than in the external one. In 2007, Brazil sold a total of BRL3.79bn in 10.25% 2028 real-dominated bonds through four different sales, according to Dealogic data. This follows BRL3bn placed in 2022s throughout the second half of 2006 and a BRL1.5bn 2016 sold in 2005.

Brazilian real estate developer Gafisa plans to issue BRL250m in local debentures in the coming weeks. The move is an attempt to shore up its working capital needs as it looks to execute a large pipeline of projects, including ones by its low-income subsidiary Tenda. “The idea here is to have a stronger cash position and more financial flexibility,” Duilio Calciolari, Gafisa’s CFO, tells LatinFinance. “This is good that they can access the debenture market because they really needed the cash,” says one buyside real estate analyst, who notes the local bond market is a good option for the company now. “This is basically buying them time,” he adds. Gafisa plans to raise the BRL250m across 2 tranches: a BRL100m one that will pay CDI plus 325bp and a second BRL150m one that will pay and 200bp over the CDI, says Calciolari. The average tenor of the funds is 2 years and the average rate of the entire issue will be around CDI plus 250bp, he says. Banco Votorantim will lead the trade. Gafisa’s original plan was to raise the funds – up to BRL700m worth – through an equity follow-on via JPMorgan and Itau, which would have both reduced leverage and boosted its cash position. But following the deal’s announcement, the stock traded down to around BRL15.00, which led Gafisa to shelve the sale. It will likely still consider a sale if its valuation improves, but for now, it has turned to the local market to resolve the working capital issue. “We believe this announcement is slightly positive for the stock as it is likely to push further down [the road] a follow-on offer,” says Bank of America Merrill Lynch analyst Carlos Peyrelongue in a note to investor clients. “We continue to believe that unless the stock is above BRL27 or BRL28, [Gafisa] will not proceed with a follow-on offer. We reaffirm our BUY rating on the stock.”

Brazilian meat processor Marfrig has obtained a BRL200m credit line from Banco do Brasil, it says. Mafrig did not disclose the interest rate for the 5-year facility. Marfrig plans to use the funds available to replace short-term currency contracts it has with Banco do Brasil. “This transaction will help improve the debt profile of the Marfrig Group and extend its short-term debt, ratifying its policy of maintaining a solid cash position in its operations,” says Marfrig.

Cyrela Commercial Properties (CCP), the publicly listed Brazilian developer of commercial real estate, has raised $300m with two large institutional investors to form a new vehicle that has characteristics of a real estate fund and a joint venture. CCP is contributing $100m to the effort, leaving it today with a $400m pool of new capital to be used in expanding and diversifying its portfolio. Canada Pension Plan Investment Board (CPPIB) and Singaporean sovereign wealth fund GIC are each contributing $150m in what the market has interpreted as a significant demonstration of confidence in Brazil and its commercial property market. The two also have the option of increasing their individual commitments to $250m, which would bring the pool to $600m, according to a person with knowledge of the trade. “This shows that funds are starting to put their money to work and they’re choosing to do it in Brazil first,” Bruno Laskowsky, CCP’s CEO, tells LatinFinance. The executive says he believes this is the first LatAm real estate investment for CPPIB, whose plan totals $105bn. GIC, which manages over $100bn, already has a longer track record of investing in Brazilian real estate. The fact that CCP is publicly listed provides the investors with some of the assurances they look for when committing long term capital, says Laskowsky, pointing to transparency, accountability and corporate governance as chief investor concerns. The general quality of the assets CCP targets, which tend to fall in the so-called AAA category, is also a draw, says the CEO. US-listed CCP ADRs closed up 9% at $20.49, while its Bovespa-listed shares were up 2% at BRL10.20.

LatAm equity funds pulled in $203m in cash in the week ended August 5, with $89m going into Brazil equity funds. GEM equity fund, meanwhile, drew $424m, according to EPFR Global. Lipper data shows that the performance of the LatAm equity funds it tracks have also on a positive streak, rising 4.73% in the week ended August 6, and up 65.74% YTD. EM equity funds, meanwhile, are up 3.22% in the week, and 50.12% YTD. Global small and mid cap funds are up 2.16% for the week and 26.06% YTD.

Goldman Sachs has improved its growth forecasts for Brazil and Mexico, although the shop still sees both countries’ economies contracting this year. It now sees Brazil’s expansion contracting by 0.4% compared to a previous 1.0% forecast, and Mexico growth shrinking by 8.1% versus a previous 8.5%. In Brazil, the risk to growth is to the upside, because of that country’s strong combination of monetary and fiscal stimulus since October 2008 and the potential for a pickup in external demand. The change in Mexico’s forecast is based on a better outlook for the US economy, says the shop. Goldman now believes US GDP will contract 2.6% in 2009 instead of 2.9% as it had previously thought.