Category: Brazil

Mexico’s central bank reportedly intends to buy IMF bonds, following similar announcements by China, India and Brazil. While some may question this use of dwindling reserves at a time when the economy is under such severe pressure, analysts say it is a good idea. Alfredo Thorne, MD of economic and policy research at JPMorgan, says that doing so would allow the central bank to reduce exposure to the US dollar in favor of more stable IMF special drawing rights. He adds that he has heard Mexico might purchase $25bn in the bonds, versus Brazil’s $10bn bid. The country’s reserves total $75bn, versus Brazil’s roughly $200bn. Walter Molano, an analyst with BCP, says that by acquiring IMF bonds, Mexico – as well as the other countries interested in doing the same – can have more say in how the fund operates.

Construction delays on a drill ship in Asia are forcing Brazil’s Grupo Schahin to renegotiate an $800m 10-year Petrobras vessel project loan. This may impact Schahin’s ability to raise funds for a new set of oil platforms, say bankers. The loan being reworked was launched mid-2007 at 237.5bp over Libor during the 3-year construction period and 162.5bp-200.0bp in the 7-year post construction period. New pricing and final maturity are still being worked out, say people close to the transaction. An executive close to the sponsor says there is nothing alarming about the delays at Yantai Raffles shipyard, which are always expected with large projects, and that Petrobras is aware of the potential delay to construction of the rig, called Black Gold. But bankers watching the deal worry that postponement will cost the sponsor, as additional expenses eat into its ability to extend a larger equity contribution for an upcoming deal. Schahin is planning an estimated $1.3bn 10-year project loan for 2 new twin platforms, to be called Black Diamond. A Schahin executive dismisses concerns as unfounded speculation and sees no reason to be concerned about either transaction. “The shipyard is always a critical component of these deals,” says a syndicator, echoing remarks by other project bankers. Bankers allege that China-based Yantai Raffles has little experience in building this specific type of Petrobras vessel. Appetite for fresh Schahin risk will be gauged by the performance of Odebrecht’s syndication for a nearly identical project – twin platforms with a debt component of $1.3bn. Odebrecht’s facility offers 340bp in year one and steps up to 415bp over Libor. A Schahin deal would likely have to start at around 400bp, says a banker with knowledge of the credit. Schahin hopes it can put together long term financing for Black Diamond by year-end. Bankers on the deal are skeptical that such a timeline is achievable. Standard Chartered, Unicredit, WestLB and Mizuho signed agreements wi

Brazilian companies are in a class of their own when it comes to governance, while Mexican entities are falling behind. As corporate standards get tougher, Brazilian power generator and distributor CPFL distinguishes itself with a firm focus on sustainability, according to the third annual LatinFinance ranking of the corporate governance of the 50 largest public LatAm non-bank corporations, conducted in association with Management & Excellence (M&E). Brazil is helped by being the only LatAm country with a corporate sustainability index, the ISE, launched in 2005 and used as a reference for social responsibility related investments. Companies are required to follow a series of checkpoints in sustainability to be included in the ISE. “The significant growth in the quantity of IPOs in the Sao Paulo Stock Exchange, with a large portion of those following the New Market, enforces tight standards in governance and transparency,” says M&E managing director William Cox. For the second year running, CPFL tops the corporate governance charts. “CPFL found that including sustainability in its management practices was key for its success in the long term and it took the leading edge on that,” says Cox. “They’ve demonstrated good performance in three areas, with simple and efficient projects, with a good communication level of their reports through their website. That makes it easier to understand what is going on inside the company,” Cox adds. In general, Brazil is doing better than the rest of the region. “Laws, stock exchange guidelines and public awareness of sustainability are at a different levels in Brazil than, for example, in Mexico,” says Cox.

Canadian mining exploration company Yamana Gold has agreed to sell its producing mines in Honduras and Brazil to Aura Minerals for $200m, of which $160m is in cash and $40m in Aura common shares at CAD0.40 each. The sale of the Honduras mine, San Andres, is expected to close July 23 and the Brazil mines, Sao Francisco and Sao Vicente, are expected to close by the end of the year. Yamana will retain a contingent cashflow-based royalty on the mines that will provide up to $40m in additional payments to Yamana, which it says it expects to receive beginning as early as 2012. National Bank Financial is acting as the financial advisor to Yamana and Cassels Brock & Blackwell is legal advisor. Aura Minerals’ financial advisor is Genuity Capital Markets and its legal counsel is DuMoulin Black.

Brazilian debt was most frequently traded in Q1, according to EMTA, with $175bn in turnover. This compares with $238bn in Q1 2008 (a 27% decline) and $164bn in Q4 2008 (a 7% increase). “Brazil’s 2040 bond remained the most frequently traded industry instrument, accounting for $12bn of survey turnover, although volume was down 58% and 8%, respectively, from the same quarter in 2008 and the previous quarter,” says EMTA. Brazilian volumes accounted for 19% of total survey trading, slightly below its share for the 5 previous quarters. Turkish assets were second most frequently traded, at $140bn, and China third with $92bn. Other frequently traded instruments were securities from Mexico ($45bn). EMTA’s survey includes trading volumes in debt instruments from 90+ EM countries. It includes data from 46 EM debt traders and investors, including investment and commercial banks, asset managers and hedge funds.

Brazilian electric transmitter CTEEP plans to sell BRL200m in 180-day promissory notes. It does not indicate additional details of the operation. The unit of Colombia’s ISA is rated AA on a national scale. ISA told LatinFinance in April it is considering dollar bonds for CTEEP along with an issue of its own later this year.

A group of Brazilian executives holding shares in Anheuser-Busch Inbev (AB Inbev) plan to sell some 11m shares to reduce their stake to 23.5%, according to news reports. A company spokeswoman confirms the trade, according to Bloomberg. The sale is estimated to be worth $370m, representing a relatively small portion of the company, whose market cap stood at EUR39bn Thursday. Credit Suisse is reported to be running the deal. Bankers there decline to comment. AB Inbev closes down 2.36% in European trade.

The pipeline of Brazilian real estate companies looking to issue equity is swelling rapidly, and bankers say there is more to come. BRMalls is the most recent name to file. The company says it plans to issue around BRL800m worth of shares, BRL300m of which will be secondary. MRV and Gafisa have also stated intentions to raise cash. The rationale for each issue is different, says a real estate analyst at a large US-based mutual fund who asks not to be identified, as his fund is participating in some of the deals. In the case of BRMalls, a question mark hangs over the fact that GP Investments is divesting some of its holdings, says the analyst. “Are they telling the market that the stock is now expensive?” he asks. MRV is raising cash for new projects as it ramps up production for a large government sponsored low-income program. The secondary shares in its offering are rumored to come from US fund Autonomy capital, which is heard facing redemptions. “Gafisa is issuing to repair its balance sheet,” says the analyst. A Brazil-based banker sees more real estate companies preparing filings, including PDG Realty, which last issued equity in October 2007. PDG officials were not immediately available to comment. BRMalls is led by UBS Pactual, Itau BBA and Santander. BRMalls shares closed Wednesday at BRL16.39. Thursday was a market holiday in Brazil.

UBS Pactual is downgrading to neutral OGX, which it says has been one of the best equity performers in Brazil and one of the strongest in the oil space. “Year to date, OGX is up 152% and now we no longer see the undemanding valuations that we saw in the last months,” says UBS. Relative valuation to its peers has closed and the upside from a few successful wells is no longer transformational, it adds. UBS sees FX strengthening offsetting higher oil, and now predicts BRL ending at 2.04 to the dollar, versus a 2.45 earlier forecast. Its target remains BRL1,263/share, versus BRL1,065 Wednesday.
“We continue to see OGX as an excellent investment proposition,” says UBS.

Brazilian water utility Sabesp has completed a BRL600m promissory note issue. The 180-day paper pays DI plus 3.5%, and will fund the repayment of debt due in 2009. Banco do Brasil managed the sale.