Category: Brazil

Brazil’s central bank is expected to cut its Selic rate by 100bp to 10.25% April 29. Bank of America-Merrill Lynch believes that after this 100bp cut, weak activity data should lead to lower the Selic to 9.25% by June. In February, IP dropped 17% compared to February 2008, the shop says. ING, meanwhile, also calls for a deceleration in the easing pace to a 100bp cut in Selic rate April 29. On March 12, the central bank made a 150bp cut.

PepsiCo has agreed to acquire Peruvian snack company Karinto, its manufacturing partner Bocaditos Nacionales and all of its brands for an undisclosed amount. Pepsi also recently acquired Brazilian snack company Comercio de Doces Lucky, maker of the Torcida and Fofura brands. Erin Ashley Smith, an equity analyst with Argus Research, believes Pepsi will continue to make EM acquisitions. In her latest report on Pepsi, she says free cashflow was $4.7bn in 2008, and cashflow from operations $7.0bn.

Brazilian meatpacker JBS has set 13% area guidance on a $400m issue of 2014 bonds for its JBS USA and JBS USA Finance units, according to bankers managing the sale. Books are expected to close late today with pricing likely tomorrow morning. The transaction, now roadshowing, is heard being marketed to the US high-yield investor base, in addition to EM buyers. Parent JBS SA’s outstanding bonds have tightened from north of 18% yield to 15%-16%, according to a trader, though the issuer is attempting to draw comparisons with US issuers such as Tyson Foods, whose recent 2014 bond trades at 9%-10%. The new JBS bonds are guaranteed by both the US units and parent. JPMorgan and Bank of America are managing the sale.

CMPC Tissue, a unit of Chile’s Empresas CMPC, says it is acquiring Brazil’s Melhoramentos Papeis from Melpaper for about $162m. Melhoramentos, says CMPC, has a 10% market share in Brazil and $190m in annual sales. The deal is expected to close June 1. Gonzalo Garcia, general secretary of CMPC, says that the transaction is being paid for using proceeds from the company’s recent bond issue and cash. He adds that no outside financial advisors were used. Besides the acquisition, Garcia says CMPC is investing $60m to build a paper plant near Bogota. Last year, CMPC bought diaper maker Drypers Andina in Colombia.

The sale by UBS of Pactual Monday raises doubts about the Swiss bank’s long term commitment to it LatAm business, which was underpinned by Brazil. UBS says the deal is consistent with a policy to continue to reduce its risk profile, strengthen the balance sheet and sharpen its business focus, but it is withdrawing from a market that most of the competition considers core to any regional investment banking platform. “I wouldn’t be surprised if they got totally out of Latin America,” says a person familiar with the UBS operations. “Pactual was 80%-90%, why keep the rest of the business,” adds the banker. A Sao Paulo-based banker at another shop says UBS is exiting all Brazil businesses and will apparently sign a non-compete with BTG. However, UBS says it will continue to cover LatAm, including Brazil-based clients. “We will continue to have a sizeable presence in Mexico and representative offices in other Latin American countries,” says a UBS spokesman. “We have no intention to exit any other EM region,” he adds. UBS has rep offices in Argentina, Chile, Panama, Uruguay, Cayman Islands and Bahamas. UBS says the transaction is at a premium to book value. It will increase Tier 1 capital by CHF1.3bn, cut risk weighted assets by CHF3.0bn, and reduce total assets by CHF6.3bn. It will also strengthen UBS’s BIS Tier 1 ratio by approximately 60bp. UBS said last week it was looking to exit high-risk and unpromising businesses. When it bought Pactual in 2006, then-CEO Peter Wuffli hailed Brazil as one of the world’s fastest growing financial markets and a key focus for UBS. The bank was a leader in the Brazil equity boom of 2007 and finished second last year in the LatAm core investment bank fees league table.

Cash-strapped UBS has sold its Brazil operations to BTG, a boutique run by Andre Esteves, who sold the same unit to the Swiss bank in 2006. The $2.475bn purchase of UBS Banco Pactual will be paid for in cash and the assumption of liabilities, including a deferred compensation package. In 2006, former Pactual managing partner Esteves sold his shop to UBS for $1.0bn cash and up to $1.6bn in compensation deferred to 2011 – subject to performance conditions which apparently were met – and rose to become the Swiss bank’s global head of fixed income. UBS also retained $500m in shares for Pactual and UBS employees, payable beginning on the fifth anniversary of closing. It estimated the present value of the deal at $2.5bn at the time, and UBS expects this week’s sale to result in a small loss. BTG will apparently assume the compensation liabilities as part of the transaction, but it declines to comment on the specifics of the financing. A Sao Paulo-based banker at a rival shop says UBS may be providing financing to BTG to cover the $1bn cash portion. The deal was negotiated privately, with no external advisors. Neither side would comment on how long they had been discussing a deal, but rumors have been circulating for months about former Pactual partners looking to separate from UBS. “This deal represents a major step forward in the development of an investment banking strategy by BTG and will contribute significantly towards our building a solid platform for BTG’s international expansion,” says Esteves. The new entity, BTG Pactual, will consist of an investment bank in Brazil and asset managers in London and New York. UBS has a stake in BTG, which it will apparently retain, along with distribution and prime brokerage agreements. “Following completion of the transition, they will continue their established broad commercial partnership,” says BTG. BTG Pactual says it will continue to look for additional opportunities to expand its operations both abroad and in Brazil. At the

The Brazilian state of Pernambuco has secured a $154m World Bank loan to improve public education and introduce management reforms linking public expenditures to improved results. The deal covers $150m in education sector investments and $4m for technical assistance. Bank officials did not return calls seeking terms. Elsewhere, the World Bank approved a $64m loan to Paraguay. The country will use the loan to improve water and sanitation services, benefitting about 17% of the population. The fixed-rate loan from World Bank has a 27-year maturity and an 8-year grace period.

Brazil telecom company TIM Participacoes has agreed to acquire Intelig Telecomunicaciones. TIM plans to issue up to 6.15% of its preferred shares and up to 6.15% of its common shares, representing 9.13% of TIM’s fully diluted shares outstanding, for a total consideration of BRL628m based on the closing stock price of BRL6.45 per preferred share and BRL3.26 per common share. TIM initially announced its intentions of acquiring Intelig in February. The deal was privately negotiated, according to Dealogic.

Brazil’s government will offer BRL10bn in credit through BNDES to support activities in agribusiness, the finance ministry says. The funds will go mostly to support the country’s meatpacking sector and will be offered at an annual interest rate of 11.25%. The sector has seen problems stemming from over-indebtedness and drops in export demand, with Arantes and Independencia filing for bankruptcy protection this year. JBS is aiming to issue a $400m 5-year bond through its US units as soon as this week, at an expected yield of 12%-13%. JPMorgan and Bank of America are leading that B1 issue.

Brazil’s development bank is in no hurry to tap the cross border or domestic bond markets, says Luciano Coutinho, president of the BNDES. Speaking at World Economic Forum meetings in Rio, the official says that while many bankers have asked the BNDES when it wants to tap, today’s spreads in the international market are not compelling for a new issue. Asked if he would consider a local debentures tap, Coutinho says Brazil’s interest rates are coming down and there will be plenty of time to issue at more attractive levels. BNDES is meanwhile in talks with several companies to help them work through debt and financing issues. “There are less than 20 cases where we are working together [with companies],” says Coutinho. “I think we can find a solution for almost all these cases,” he adds. Coutinho says some of the companies are very small. The goal, he adds, is to try and stem rising aversion to lending and rolling over lines by private sector banks. BNDES wants to prop up weaker credits and boost their ability to borrow again from private lenders. International bankers say they want to see the same commitment from Mexico, which has been dragged down by ongoing trouble at fallen angel Cemex.