Category: Brazil

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.

Vale has sold its almost 15m shares in Usiminas for BRL40.00 per share, or a total of BRL594.7m, to a group of Usiminas shareholders. The buyers include Camargo Correa, Mitsubishi, Nippon and Votorantim. The stake is equal to 2.93% of Usiminas’ total capital, Vale says. After this sale, Vale will no longer have a participation in Usiminas.

Brazil’s Banco Bradesco has acquired a 10% stake in medical-testing service provider Laboratorios Fleury for BRL150m in cash. The deal was privately negotiated, according to Dealogic. Fleury revenues for 2008 were more than BRL700m, according to company information.

Brazilian meatpacker JBS is whispering 12%-13% yield on a $400m issue of 2014 bonds for its JBS USA and JBS USA Finance units, according to bankers managing the sale. Official guidance is expected at the start of next week. The transaction, now roadshowing, is heard being marketed to the US high-yield investor base, in addition to EM buyers who might be more familiar with the parent’s existing bonds, such as a 10.5% 2016 now trading north of 18.0%. The issuer, however, wants to draw a comparison with US comps, such as Tyson Foods’ 10.5% 2014, priced in late February to yield 12.5% and now heard trading at 9.0%-10.0%. The new JBS bonds are guaranteed by both the US units and parent, and offer covenants not seen in the JBS SA bonds. It remains to be seen if investors, wary of the problems at other Brazilian meatpackers, will be sufficiently reassured. JPMorgan and Bank of America are leading.

Tenda is planning to sell BRL600m in 2014 bonds in the Brazilian market. The Brazilian builder expects to pay the TR rate plus 8%. Proceeds will be used to finance the construction of homes with a focus on lower-income housing, given the government’s recent announcement of the BRL60bn “Minha Casa, Minha Vida” low-income housing program. Tenda is rated BBB minus on a national scale.

Downward revisions to Brazil’s primary surplus targets have prompted criticism from analysts at Goldman Sachs. “We are increasingly concerned by the ad-hoc approach to fiscal policy management and haphazard delivery of fiscal stimulus to the economy in recent months,” says the shop. It worries about erosion of institutional underpinnings for fiscal execution, as well as growing pressure placed on public financial institutions and state-owned enterprises to discount market signals and expand balance sheets and investment budgets. “Although we do not foresee a fiscal crisis or divergent debt dynamics in the near future we see the deterioration in the quality of fiscal execution as commanding a risk-premium in CDS space and the local yield curve,” it adds. Brazil targets a consolidated public sector aggregate primary surplus target of 3.3% of GDP in 2010-12, down from a 3.8% of GDP original target for 2009, which was lowered to 2.5%. The budget guidelines assume 4.5% real GDP growth in 2010 and 5.0% during 2011-12. “Furthermore, we highlight that the government is still working with somewhat unrealistic assumptions about real GDP growth: +2.0% in 2009 (we expect -1.0%) and 4.5% in 2010 (we forecast 3.0%),” says Goldman.