Category: Brazil

UBS Pactual has downgraded Brazil highway concession operator CCR to neutral from buy as it believes the stock trades right up against the inherent fair value of the company’s portfolio, making for materially less compelling risk/reward. The shop forecasts significantly higher net debt relating to leverage taken on to fund Rodoanel, driving financial expenses higher and leading to net income declines in both 2009 and 2010. UBS expects net debt to rise to BRL4.3bn this year and BRL5.2bn in 2010. The shop left the stock price target unchanged at BRL27.75. CCR’s stock closed at BRL27.64 May 11.

Brazil’s government chose not to extend the reopening of its 5.875% 2019 bond to Asian markets, the finance ministry says. It sold last Thursday $750m of the bonds, priced at 100.539 to yield 5.800% or UST+252bp, and also had the option to tack on up to 5% for Asian investors. Barclays and Citi managed the sale, which amassed a book of $4.5bn. Brazil originally sold $1.025bn of the bonds in January, priced to yield 6.127%, including $25m tacked on for Asia the following day. The bonds – trading at about 102 before the announcement of the retap – closed Friday at 100.5, according to traders, the same level as the afternoon of the transaction. Debt analysts see a robust window for LatAm issuers and say anyone looking to borrow should move quickly.

Private equity firm Advent International has taken a 30% stake in Brazil’s Cetip for BRL360m ($170.6m) from local financial-market participants. Cetip is Brazil’s main central depository for private fixed-income securities and OTC derivatives, says Advent. As an investment, Cetip provides a good mix of business lines that help offset drops in volumes in any single market, says Advent’s lead partner on the deal. “The company is very diversified and can handle well periods of high and low volatility,” Martin Escobari, MD at Advent, tells LatinFinance. During periods of elevated volatility, derivatives activity picks up while more stable periods allow for debentures issuance and the like, he adds. Cetip also counts on advice from former senior executives of BondDesk, a large fixed income electronic trading platform in the US, and the Chicago Mercantile Exchange. Advent is now Cetip’s leading shareholder, with the rest of the company’s ownership being relatively atomized, says Escobari. Cetip demutualized 2 years ago and considered a number of options including an IPO, but for a number of reasons ended up not following through with that plan. Goldman Sachs advised the PE firm on the deal.

Banks and sponsors are locked in a tough negotiation over pricing on an $850m 10-year Brazil project loan for a set of twin drilling platforms to be used by Petrobras. Odebrecht, the project’s sponsor, and international bank lenders, appear to have irreconcilable differences on where the facility – the largest and longest tenor currently in the market – should price. There is some agreement that the current Libor plus 300bp-375bp pricing is insufficient. But banks, especially smaller institutions with lesser balance sheets, insist the starting point should be no lower than 350bp for consideration by credit committees. Odebrecht officials meanwhile say there is no way it will pay more than 325bp in the first year, and that a 25bp pickup should be sufficient to bring in lenders requiring additional spread. “The pricing is a bit thin,” says a project syndicator at a major LatAm lender. “It has to start at at least 350bp,” says a prospective participant at a smaller shop. The deal’s commitment period has been pushed back by a week to May 22, but it will likely need even more time. The main problem for Odebrecht is that there are other projects in the region – some in higher rated countries – offering higher spreads for shorter tenor and lower volume. AES Campiche, for example, cut tenor to 7 from 10 years and lowered size to $220m from $445m and is still seeking lenders for a Chilean deal that pays 350bp-400bp over Libor. Pacific Rubiales – an oil and gas firm with assets in Colombia – is still patiently waiting for additional participation on a 4-year $250m facility paying 550bp. Both have been marketing for more than 2 months and bankers say that liquidity continues to be constrained.

LatAm equity funds saw the highest weekly inflows of the year on the week ended May 6 thanks to Brazil ETFs. Of the total $713 million that flowed into LatAm equity funds, $627m went directly to Brazil ETFs, says EPFR Global. GEM equity funds, meanwhile, saw inflows of $1.1bn. EPFR notes that the flow into EM funds continues a pattern that started in late March, with cash coming off the sidelines and bypassing funds geared to developed markets in favor of emerging markets equity.

Brazil’s well-received $750m retap of its 5.875% 2019 bonds comes on the crest of EM market rallies and diminished risk aversion, and paves the way for the other sovereigns to follow. However, those wanting funds may have already issued. “Most sovereigns who need money have already gone, though you can’t rule out some pre-financing if yields continue to be good,” says an EM-dedicated investor. “In this kind of environment where we don’t know if we’ve recovered, you can always issue to have an insurance policy,” says another. Mexico, Panama and Peru have issued this year, and Colombia has gone once and already reopened. Chile was considering a cross-border issue earlier in the year, but appears to have reconsidered as copper prices have risen. Uruguay has told LatinFinance that it might consider a pre-funding dollar bond earlier in the year. January and February issuers who paid more are unlikely to be kicking themselves, however. “You can never be sure if good conditions will last,” notes a DCM banker.

China is gaining ground as a trade partner for Brazil, says Standard Chartered, adding that in March and April it surpassed the US as the leading export destination for the first time. Typically, China has been behind the US and Argentina as the most important consumer. “Looking at Brazil’s recent trade data, one could say that China is now a platinum account,” says Standard’s Americas chief economist Douglas Smith. In April alone, Brazil exported $2.23bn worth of goods to China while the US came second with $1.34bn in exports. Brazil typically sends primary products like soy and iron ore, but Smith also notes a surge in total trade – exports plus imports – between China-Brazil, at $36bn last year, versus $600m in 1990. And Smith notes that Brazil does far more trade with China than with India or South Korea. “In conjunction with the growing trade relationship, it is natural that there is a growing investment and political relationship between the two countries,” says Smith. He adds that Lula will visit China again later in May, and that both nations are increasingly vocal regarding the need for IMF reform. “There is always the question of the role of the USD – in the recent past, Lula has suggested that China and Brazil’s trade could be transacted in local currencies,” says Smith. In the future other products such as ethanol and oil could also make the list of main exports, especially after Brazil is able to extract oil from newly discovered reserves in pre-salt basins, he adds.

Brazil flew in the face of wilting local equities to fortify its 10-year benchmark bond with a $750m retap, upsized from $500m on some $4.5bn in demand. The sovereign reopened the 5.875% of 2019s at 100.539 to yield 5.800%, or UST plus 252bp. After early whispers of 5.875% area, the issuer tightened to 5.800%-area guidance, and launched at 5.800%. Books were heard open for only a little more than an hour. Bankers away from the deal estimate a 20bp-30bp reopening premium, based on a pre-announcement trading price of around 102, generally giving the execution a thumbs up. Bankers on the deal pin the premium at 20bp. The premium compares to 50bp Brazil paid on the original $1bn issue, priced at a much higher yield of 6.127% or UST plus 370bp, which it subsequently boosted to $1.025bn. “I’d issue as much as I possibly could at these levels,” says an EM investor who participated, disappointed only that the hefty book meant allocations were small. Demand came from almost 200 accounts, say bankers on the transaction, with about 65% from the US, and 25% from Europe. Despite elevated demand, the sovereign decided to be cautious, as its main objective was tight pricing, the bankers say. Recent UST bond volatility was a concern – including a 20bp widening in the 10-year Thursday – and investors say this could pose a problem for the bonds’ trading going forward. The bonds were heard trading at around 100.5 late Thursday afternoon. Barclays and Citi managed the transaction. Brazil has the option to increase the transaction by up to 5% overnight during Asian market hours, as it did in the original, adding $25m the following day. The 2019 was launched in January.

France’s Groupe Casino has acquired 2.2m new shares of Brazil-based CBD’s preferred stock for a total of BRL71m, raising its stake to 35.4% from 34.8%. Under a deal initially agreed in 2005 Casino, transferred to CBD goodwill arising on its investments in the company, so that CBD could deduct the related amortization from its tax expense, as allowed under Brazilian tax and securities legislation. In exchange for the transferred goodwill, CBD has agreed to pay 80% of the tax savings back to Casino in the form of new CBD preferred stock.

Brazilian regulators have approved a BRL650m promissory note issue from Concessionaria do Rodoanel Oeste, a unit of toll road operator CCR. The 180-day notes will pay DI plus 2.1%. The issuer is building the western portion of Sao Paulo’s Rodoanel Mario Covas ring road, and proceeds will refinance debt taken out to finance construction. Itau is managing the transaction, rated F1 by Fitch.