Category: Brazil

Fitch has upgraded Brazilian miner Vale to BBB from BBB minus, crediting an extremely strong financial profile, healthy cashflow from operations in the midst of a severe downturn in commodity prices, and ability to make selective acquisitions. However, that does not mean the company will go unscathed this year. Due to a negative market for many of Vale’s products, particularly nickel, Fitch expects Vale to generate Ebitda at levels substantially below 2008, and possibly less than half of last year. With capital expenditure, dividends, and acquisitions expected to total more than $13bn, Fitch believes net debt could increase to about $11.0bn from $5.1bn at the end of 2008. As a result, the net debt/Ebitda ratio could be in a range of 1.2x-1.4x. However, such ratios remain comfortably within the rating category, Fitch says. “We continue to view Vale as a solid credit with a significant liquidity position, and while we believe upside potential is limited, we expect bonds will continue to tighten with a broader rally,” says Barclays.

Foreigners’ desire to gain direct access to Brazilian securities markets remains strong, according to industry experts. “There are two large foreign brokers – a German one and an American one – that are in advanced discussions to acquire brokers in Brazil,” Manoel Felix Cintra Neto, former chairman of the BM&F and president of ANCOR, Brazil’s national association of brokerages, tells LatinFinance. He declines to name the interested parties. Last year a handful of Brazilian BM&F and Bovespa-focused brokerages in Brazil were snapped up by foreigners. These include the BGC Partners, which bought Liquidez DTVM for an estimated BRL500m in August, and London-based ICAP, which bought Arkhe DTVM for $17m in November. Cintra declines to specify potential targets, but notes that transactions could be worth over BRL500m each. Also in 2008, Citi bought Intra, Bradesco bought Agora, and Colombia’s InterBolsa took a majority stake in Finabank.

Brazilian billionaire Eike Batista is gearing up to build and operate Brasil Estaleiros (BEX), which he claims will be Brazil’s first major shipyard specializing in standardized oil and gas exploration vessels. The facility, whose construction is expected to command an investment of $500m-$600m, is set to be built on a 1.6m square meter stretch of coastline called Biguacu in the southern Brazilian state of Santa Catarina, Batista tells LatinFinance. Some 80% of the financing for the project will come from the BNDES, with the balance in the form of equity from eventual BEX shareholders, which would include the Batista’s holding company EBX. Batista is in discussions with 3 Singaporean and 3 Korean shipbuilders to discuss a partnership whereby likely only 1 operator would acquire a minority stake in BEX and contribute with operations and know-how. “Brazil needs to get away from this habit of building one specific kind of platform for each [type of oil exploration,]” says Batista, noting the goal is to create a sort of assembly line that can bulk produce standard model vessels to be used by Petrobras, OGX and eventually other international clients. Petrobras CEO Jose Gabrielli says standardizing equipment production is among the oil giant’s priorities for saving costs, as it seeks to execute a $174bn investment plan. “OGX’s demand for [offshore drilling] equipment alone will total some $20bn over the next several years,” says Batista. The executive says BEX will likely be among the main underpinnings of his holding company’s new $10bn infrastructure private equity fund, set to be raised this year. Proper licensing for the shipyard, however, may take a good part of a year, says Batista. And construction of this kind of facility could take an additional 4-5 years, adds an EBX official.

Brazilian industrial valves manufacturer Lupatech plans to issue BRL320m in 2018 convertible debentures, in a transaction backed by BNDES. The proposed issue – to be approved by shareholders June 1 – comes after 14 months of negotiation with BNDES. It will extend Lupatech’s average tenor to 6.0 years from 1.5 and increase its proportion of BRL-denominated debt, an investor relations official explains. The notes will be offered privately to existing holders over a 30-day period, with the development bank purchasing its portion as an 11.5% stakeholder plus any remaining shares at the end of the subscription period. The notes will pay IPCA plus 6.5%, and can be exchanged for shares starting in year 3 using a conversion mechanism that Lupatech claims is a first for the Brazil market. The conversion price is equal to the market price, limited to a BRL17.50-BRL35.00 range, plus a diminishing premium equal to 100% of the price in the third year and 40% of the price in the eighth. The formula is designed to protect existing shareholders, Lupatech says. A buyer holding the debentures for 9 years will receive a maturity premium of BRL423.75 per BRL1,000.00, which increases total return to the equivalent of IPCA plus 10% annually, it adds. Lupatech can also call the bonds after 2 years. Proceeds will pay short-term debt and fund future acquisitions, the official says. No bank is managing the transaction. About half of Lupatech’s debt is in dollars, including $275m in 9.87%% perpetuals trading recently at mid-70s levels, according to Credit Suisse. Earlier this month, BNDES and BNDESPar approved financing facilities for Lupatech worth BRL441m. Lupatech had BRL1.239bn in total debt as of Q1.

Brazilian miner Vale expects to cut 2009 planned capital spending by 37%, to $9.04bn from $14.24bn, due to falling costs and a stronger dollar. The new budget sees $6.96bn for organic growth – including $5.93bn in projects – and some $2.07bn for existing operations. Vale has indicated that global investments in the mining industry would probably fall 55% percent to around $50bn billion this year due to the economic slowdown. UBS expects M&A activity to pick up this year, which should support Vale’s cashflow and capex spending. “Overall, capex plans do not worry us, but we remain wary of Vale’s M&A plans. The company has made a couple of small acquisitions this year, but its diversification goals and unleveraged balance sheet still imply risks of larger acquisitions in the future,” UBS says.

As Brazilian petrochemical producer Braskem continues to pursue expansion beyond Brazil, asset valuations in North America are looking more attractive, the company says. “The moment is opportune for acquisition,” CFO Carlos Fadigas tells LatinFinance. He adds that this is especially true in North America, where values have come down due to the crisis. Fadigas adds that Braskem is not yet looking at any specific acquisitions, and declines to name any specific targets. “The ideal target is an quality asset with a low valuation at the moment in a company that needs cash,” he says. In South America – where Braskem has gone beyond Brazil in a joint venture in Venezuela – there are fewer large possibilities. North America also offers more opportunity for sales, says Fadigas. The larger petrochemical producers in the US include LyondellBasell, Dow Chemical and ExxonMobil.

Braskem is meeting Brazilian investors this week to tout a BRL250m Chemical IV securitization trust deal, which was also roadshowing last week. The rates on the 18-month vehicle, known as a FIDC in Portuguese, will be determined during the bookbuilding process, CFO Carlos Fadigas tells LatinFinance. “Demand has been very good,” he says, adding that with private banking clients are the most interested. The debt is backed by sales receivables. The FIDC structure is most used in Brazil for real estate investment, and Fadigas believes Braskem is alone among industrials in using it. Banco do Brasil and Caixa Economica are managing the sale. The vehicle, rated AAA on a national scale, is the fourth such issue for Braskem, and consists of BRL227m in senior and BRL23m in subordinated debt.

Companhia de Saneamento do Parana (Sanepar) has approved a private share placement to raise BRL337m. The water utility needs the funds to pay short-term debt obligations. Sanepar did not disclose the exact number of shares it plans to offer to current holders. Its shares closed at BRL1.83 Friday.

Eike Batista, the Brazilian entrepreneur, says he is moving ahead full steam with plans to create an infrastructure-focused private equity fund worth up to $10bn. “We want to establish this fund to invest in the projects tied to the companies of [Batista holding company] EBX,” he tells LatinFinance in an exclusive interview. This would imply a focus on logistics, mining, oil and gas, and power generation. “MPX could execute many more projects if it had access to more funding,” Batista adds, referring to his power generation unity MPX, which went public in December of 2007. The Equity Growth Fund, as it will be called, already counts on the support of China Investment Corporation, a sovereign wealth fund, as well as Brazil’s Banco Itau, says the executive. Batista says pension funds in North America and Europe, and other sovereign wealth funds, could make up the bulk of his PE vehicle’s remaining limited partners. “Things are so bad that many investors today are settling for returns of 3%-4%,” says the billionaire. “But in Brazil you have projects that can yield 10%-15% on a non-leveraged basis,” he adds. Batista says that the investment rationale for the fund, its structure and target returns are still being finalized. A typical “2 and 20” fee structure or similar might be employed, says the executive, referring to the practice of charging a management fee of 2% on net asset value and 20% fee on profit. EBX executives hired especially for the job will manage the fund. Batista says he has already tapped 4 directors, but declines to specify names. Among them are Otavio Lazcano, former CFO of CSN who left his Sao Paulo-based post earlier this month, and former Terna executive Giovanni Giovanelli, according to local rumors.

BTG has taken a 50% stake in Estapar, the Brazilian parking facility management services company, for an undisclosed sum. “The partnership gives Estapar access to capital, as well as BTG’s financial and management capabilities, thereby allowing Estapar to further increase its market leadership in the parking segment and accelerate its transition from a family managed to a professionally run business,” says the acquirer. The stake was purchased for the BTG Gestora de Recursos’ private equity fund. Helio Cerqueira, Estapar’s founder and largest shareholder, says the deal was done in-house and he declines to state the value. Estapar manages 629 parking lots in 10 Brazilian states and claims to have a 10% share of the car park market in Sao Paulo. BTG declines to comment on the size of the investment.