Category: Brazil

Brazil’s central bank is poised Wednesday to cut rates by 50bp-100bp from 10.25%, say analysts. “We suspect the release a weak 2009 Q1 real GDP growth reading on June 9 could tip the balance in favor of a 100bp move to 9.25%,” says Morgan Stanley, adding that the rate could reach single digits “for the first time in recent history.” HSBC expects 75bp easing and Bulltick forecasts 50bp. HSBC expects the Selic to hit 9.0% by July and to remain unchanged during 2010. Bankers expect lower rates to catalyze a big shift into Brazilian equity by domestic retail and mutual funds. Brazilian asset managers are liquid but have limited exposure to stocks, leaving significant room for upside.

Barclays has hired Ricardo Lanfranchi, former head of Merrill Lynch’s Brazil equity brokerage business. Lanfranchi, who will head Brazil equity sales, is the most recent addition to a team being assembled over the past several months. He spent 12 years at Merrill Lynch in Brazil, most recently as president of Merrill Lynch CTVM, the broker-dealer, and was at Garantia before that. Stanley Rowe, New York-based head of LatAm equities for Barclays, says the Lanfranchi hire “underscores the firm’s commitment to building a global, full-service equities franchise.” Rowe tells LatinFinance the key areas of focus for the Barclays platform are sales, trading, research and capital markets, but declines to detail the next hiring move. He adds that recruitment for the effort is 80% done. Barclays already has an equities trading group, as well as a head of LatAm research – Roberto Attuch, based in Sao Paulo. Gabriel Barbara leads equity for Mexico, while Bill Rutledge runs LatAm distribution, based in New York. “We have many corporate and institutional clients that are new to the region, or want to expand their knowledge of LatAm,” says Rowe. While Barclays’ physical presence in the region is limited to Brazil and Mexico at the moment, Rowe says the plan is to have a regional equity business, and not one that focuses only on just 2 countries. Still apparently missing from Barclays’ equity roster, however, is a capital markets specialist.

Brazil’s Banco Bradesco has agreed to acquire 100% of the capital stock of branded credit-card issuer Banco IBI and its subsidiaries IBI Corretora de Seguros, IBI Promotora de Vendas and IBI Participacoes for about BRL1.4bn in shares. The seller is retailer C&A and IBI is C&A’s financial unit. Banco Bradesco BBI, Bradesco’s investment banking arm, acted as the buyer’s advisor. Its legal advisor was Xavier Bernardes Braganca. S&P put the B+/B counterpart credit rating of Banco IBI on positive credit watch, which it expects to resolve when the transaction is concluded, expected in H2 2009. It says the shares issued by Bradesco represent approximately 1.6% of the bank’s capital and will not materially affect its financial profile. “Banco IBI’s core banking franchise of branded credit cards will add significant market share to Bradesco’s operations in this segment,” says S&P. Moody’s put IBI on review for upgrade, including the global long term local currency deposit rating of B1 and foreign currency deposit rating of B1.

Japan’s Nippon Steel plans to buy up to 2.5m shares in Brazilian steelmaker Usiminas, Usiminas says. Nippon has hired Morgan Stanley to buy up the ordinary shares, which would represent about 1% of Usiminas’ outstanding float. Usiminas shares closed Friday at BRL39.10, indicating a total price of about BRL98m if Nippon buys the entire amount. The Japanese steelmaker was part of a group that bought nearly 15m Usiminas shares, or a 2.9% stake for BRL594.7m in April.

Brazilian executives see few, if any, encouraging signs that an active secondary market for corporate bonds could develop in coming years. Alfredo Setubal, EVP and head of IR at Itau Holding Financeira says funds specializing in local corporate bonds are a very low priority for his institution. “We are not pushing growth for this product,” Setubal tells LatinFinance. “The problem is that [debentures and other corporate credit instruments] are very difficult to price,” adds the banker, who is in charge of all of the institution’s asset management arms. Setubal notes that funds have to mark on a daily basis the value of holdings and also establish a value for illiquid instruments, which is challenging. Itau has some BRL4bn in assets dedicated to corporate credit securities, says Setubal. As for having corporate debt instruments trade on an exchange, Carlos Kawall, CFO of BM&FBovespa says he is cool on the idea. “The possibility of having large volumes is very low,” says the official. “[In Brazil] there is no real practice of bookbuilding since banks offer firm underwritings [when agreeing to a deal],” he adds. Kawall notes that there has also been a dearth of issuance as investors, and as a result, issuers, have migrated to short-term instruments like promissory notes, CP and bank notes that pay higher rates for limited duration. Analysts have long seen lack of efficient secondary markets as a leading impediment to development in local fixed income markets.

Brazil’s CPFL is planning to sell BRL675m in 2011 debentures to replace commercial paper issued in April, according to regulatory documents. The utility plans to sell BRL185m through the Rio Grande Energia unit, BRL315m through CPFL Geracao and BRL175m via CPFL itself, each with the same CPFL guarantee. The interest rate will be set during bookbuilding, capped at 125% of DI. Proceeds will be used to pre-pay recently issued promissory notes and other short-term debt, according to a report from S&P rating each bond AA+ on a national scale. CPFL has not indicated the timing, and the transaction still must receive regulatory approval. In April, CPFL sold BRL495m in 1-year promissory notes through 6 of its subsidiaries at 118% of DI, through HSBC. The power generator and distributor is also preparing to tap the dollar market as early as July for some $300m-$500m, in its first cross-border issue.

Banco do Brasil (BdB) is poised to embark on a spending spree to beef up its share of the Brazil insurance and market, say people watching the process. It has hired UBS Pactual to advise it on the restructuring of its insurance business – composed of 5 joint ventures and one wholly-owned subsidiary – with a goal to creating a larger unit comparable to that of Bradesco’s and Itau Unibanco’s, say people involved in the talks. An insurance executive close to the process says the bank is looking to build significant presence in insurance alongside strong partners with industry expertise. BdB executives acknowledge an interest in expanding the business, but stop short of detailing the effort. “We strongly believe in the growth of the insurance sector in the coming years and want this business to account for a larger portion of our revenues than it does today,” Ivan de Souza Monteiro, newly appointed CFO of BdB, tells LatinFinance. Souza this week replaced Aldo Luiz Mendes, who will head up the bank’s only wholly owned insurance outfit Seguros Alianca do Brasil. “The new company could be worth billions of dollars,” says one FIG banker not involved in the process. He and others eyeing the move speculate that it could involve consolidating ownership in existing JVs by acquiring minority stakes from existing partners. An executive close to the process notes BdB is also eyeing the 51% stake Spain’s MAPFRE has in Nossa Caixa Vida e Previdencia. BdB owns stakes of up to 50% in 5 JVs: SBCE, an export credit insurance writer, with minority partners Coface of France and BNDES; BB Seguro Auto, an auto insurance JV with SulAmerica; Brasilcap, an annuities unit with SulAmerica, Icatu Hartford and Alianca da Bahia; health insurer Brasilsaude, with SulAmerica, and social security arm Brasil Prev, with Principal Financial. SulAmerica is rumored to be among the companies BdB is in discussions with, say local executives, though whether it is a seller or a joint-acquirer is unclear. The st

Brazil-based steel maker Gerdau has implemented actions to reduce total debt and adjust its cost structure to the more adverse market conditions, but the ratings remain on negative credit watch, says S&P. The agency is worried about weakening cashflow and credit metrics and is monitoring the company’s actions to improve its cost position and sustain liquidity as it aggressively reduces fixed costs and capital expenditures. “We believe the success of these actions is critical for the company to significantly and consistently reduce total debt in 2009 and 2010, and thus diminish negative pressure on its credit metrics,” says S&P. Gerdau has been affected by declining profitability in LatAm subsidiaries and, to a lesser extent, weaker performance in Brazil. It has implemented several initiatives to reduce fixed costs and adjust capex levels to preserve liquidity. Debt reduction amounts to $300m in Q1, says S&P, which expects to resolve the credit watch listing in coming months. “Although the company may not be able to adjust its credit metrics immediately to our expectations for year-end 2009, we would expect significant reduction in gross debt throughout 2009 and comfortable cash reserves to affirm the ratings,” says S&P.

Moody’s still has Rede Energia’s ratings on review for possible downgrade after the company announced a BRL300m repurchase offer to holders of its $575m in unsecured perpetual bonds. The ratings were first placed on review for possible downgrade April 23. Upon completion of the repurchase, Moody’s says it would likely cut the bonds to Ca from Caa3, since the agency views the proposed terms as distressed. The electricity company’s repurchase offer will be financed with BRL300m in loans to be provided by local market financial institutions, Moody’s says. Completion of tender offer is scheduled for June 26.

Finland-based packaging products company Huhtamaki says it is selling its rigid plastic consumer goods business in Brazil to Dixie Toga and in Argentina to American Plast for a total of $42.5m. The buyers are both units of Bemis, a US-based packaging products manufacturer. Bemis says the purchase price was paid with a combination of the equivalent of $32.3m cash on hand, $1.9m of debt assumed, and an $8.8m note payable to the seller due May 31 2010. Huhtamaki says that the units have annual sales of about $86m. It adds that it will continue to operate its flexible and rough molded fiber packaging units in South America.