Category: Brazil

Brazilian electricity holdco Rede Energia will buy back $78.4m of its outstanding $575m, or 13.6%, in 11.125% of perpetual bonds, it says. The offer to buy up to BRL300m equivalent in the securities expired June 26. Submitting holders receive $480 per $1,000, or $530 for those who met the early deadline of June 12. Both prices included an $80 clearing premium established through a modified Dutch auction. Rede plans to fund the buyback using proceeds from an expected issue of BRL320m in 1-year promissory notes paying 120% of the DI rate. Banc of America and Planner Securities acted as dealer managers. Rede sold $575m of the perpetual bonds in 2007 via Merrill Lynch.

Brazilian regulators have approved the issue of non-convertible debentures worth BRL300m by Brazilian electricity distributor Elektro. The 2011 bonds pay interest at the DI rate plus 1.4%. Proceeds will help repay existing debt at the distributor that operates in Sao Paulo state. Itau and Santander managed the sale, rated AA+ on a national scale.

Brazil’s Cosan has obtained a BRL788m loan from BNDES. Some BRL639m will go to implement its greenfield mill project in Jatai, in the state of Goias. The remaining BRL149m will be used for a cogeneration project at its Gasa unit in Sao Paulo state. “BNDES will finance approximately 65% and 78% of the total amount to be invested in the Jatai and Gasa projects, respectively, over a period of up to 12 years,” Cosan says. The company was unable to immediately provide details of the loan. In addition, the sugar and ethanol producer has obtained a stand-by facility from Bradesco of up to BRL1.1bn in order to re-finance promissory notes due in November.

Brazilian concession operator CCR plans to seek some $500m-$900m in long-term financing to replace short term debt raised to kick start some of the large infrastructure concessions it is managing, CFO Arthur Piotto tells LatinFinance. That includes a new IDB A/B loan, he says. “We expect to have in place by October long-term financing for the Rodoanel [ring road] project,” says Piotto, referring to a concession CCR won last year. The Rodoanel project is expected to cost BRL2.5bn. The company has so far raised its debt for Rodoanel through promissory notes. The company is in discussions with lenders now, and expects an A/B loan to make up the bulk of the funds it needs. A local bond issue of up to 2 years in tenor could supplement the facility. Longer tenors than that require the BNDES locally and multilateral financing in the cross border market, says Piotto. CCR is 1.7x levered, and restricted to 3.0x. In May, the concessionaire sold BRL650m in 180-day notes via Itau at DI plus 2.1%. Last year, CCR raised a $370m IDB A/B loan package supporting the CCR-led Via Quatro consortium’s construction of the Sao Paulo Linha 4 metro line.

Private equity firm Advent International has made a BRL280m investment to acquire a 50% stake in Brazil’s Pitagoras Administracao e Participacao and about 28% of Pitagoras subsidiary Kroton Educacional, which is one of the largest private education companies in the country. Advent says that of the BRL280m, BRL220m will be used to fund a capital increase in Kroton through a private subscription of additional shares for up to BRL387.9m. Funding for the deal will come from Advent’s Latin American PE Fund IV, which was raised in 2007and capitalized at $1.3bn. Itau’s investment bankers worked on the transaction, but its research department is not impressed. “We see this deal as negative and expect the market to react negatively since the controller valued the company at no premium to current market price and below our BRL19.2 per unit fair value,” Itau says. It adds that the deal implies a price of BRL16.2 per share. The shop maintains an underperform rating on Kroton. On June 25, Kroton shares closed at BRL14.79, down almost 8%. A banker close to the transaction blames dilution for the slide, but notes an opportunity to buy. “It is definitely a major step in the continued expansion and consolidation of the education sector,” adds the source.

Following a slowdown brought on by the credit crisis, Brazilian issuers and investors look to confront price and liquidity concerns and revive the market for structured finance. “When the Brazilian economy gets back to growing, securitization will definitely become more favored,” says Juan Pablo de Mollein, head of LatAm structured finance at S&P. He notes that S&P has taken relatively few negative rating actions in the asset class. New offerings, however, have taken a hit. Issuance of Fundos com Direito de investimento de Credito (FDIC), one of the most common structured products in Brazil, this year to date has been about BRL2.5bn, de Mollein says, along with BRL1.5bn for Certificados de Recebiveis Imobiliarios (CRI). This is well off the pace of last year’s total of BRL12bn for FDIC and BRL5bn for CRIs. Resolving a lack of consistency and clarity of pricing is one of the main challenges going forward, say market participants. “Basically, it’s a question of being a new market. With time it will improve,” says Morris Dayan, CFO at Banco Daycoval. Dayan notes that theoretically AAA rated structured products should price lower than most corporate bonds, while thus far they do not, due to investor unfamiliarity. This makes them attractive for investors, but less so for issuers, unless they need to diversify. Structures such as FDICs and CRIs have not been tested enough, he explains, especially in times of crisis. Better understanding of the products should boost liquidity, which was already marginal before the crisis. Dayan and de Mollein were speaking at the Third Brazilian Structured Finance Seminar, a LatinFinance event held Wednesday in Sao Paulo.

In May, Brazil’s central bank forecast FDI to the country would fall to $22.9bn this year from $45.1bn in 2008 as a result of the global economic slowdown. But, judging from the $2.4bn in FDI that flowed to Brazil in May alone, the forecast may prove to be too pessimistic. “May saw the best results ever on a monthly basis,” says Alessandro Texeira, president of Apex, Brazil’s trade and investment promotion agency. He adds that although FDI to Brazil may not surpass 2007 levels of $34.6bn, it will remain the highest in LatAm. He says it accounts for 35% of all FDI to the region and will probably increase. While Unctad estimates FDI to LatAm was 10% of global FDI in 2008, Texeira says this may increase to 12%-13% this year.

Goldman Sachs’ Brazil investment banking buildout has been fuelled by mostly internal hires thus far, but the shop is also looking to hire selectively from outside. It recently poached Claudio Sassaki, an investment banking VP at Credit Suisse who experienced in the education and pulp and paper, among other sectors. Sassaki is on gardening leave and his areas of coverage are to be decided when he starts at Goldman in July. Goldman has also tapped Peterson Paz to head institutional sales in the asset management team. He was previously head of institutional sales at Schroders. Among the internal hires for Brazil are Santiago Rubin, a seasoned MD who moves from New York to cover telecoms, tech, education and healthcare. Pedro Leite is moving from Asia to run ECM, while Andre Laport will also relocate to Sao Paulo from New York in a few weeks to run the equity trading effort. Laport is heard bringing with him a team of traders. Goldman is expected to appoint more to its Brazil team, including an investment banking VP in the short term. “There is very strong momentum in building the team,” says a source familiar with the Sao Paulo expansion. Goldman is heard taking a gradual approach, hiring selectively to boost technical skills on the ground in Brazil, rather than poaching a full team from outside. Goldman’s global board earlier this week wrapped up a Sao Paulo visit, its first ever meeting in LatAm.