Category: Brazil

The World Bank has approved a $130m loan for the Brazil Federal District Multisector Management Project. It will support public sector management and accountability reforms and increase the access, quality and efficiency of education, health and public transport services, especially for the low-income population. The project will co-finance the government’s $400m Multisector Public Management Program through a $130m loan, to be disbursed in 3 years. The objective is to improve public sector administration and accountability by establishing result-based management practices and improving fiduciary oversight. It will also modernize the education system, decentralize and integrate various levels of health care and strengthen the capacity of the public transport sector.

Brazil’s Telemar has revived dollar debt plans and is preparing a roadshow next week to support an issue of up to $750m in 10-year bonds, half the amount sought 7 months ago. The issuer’s Telemar Norte Leste unit will begin investor meetings in New York Monday and wrap up on the US West Coast Thursday, with a separate team presenting in Europe during that time, according to bankers managing the sale. Last September, the issuer aimed at 8.5% area yield on 10-year notes, as part of a $1.5bn offer of 5 and 10-year noted that was pulled amid market volatility. Investors say spreads have widened about 150bp-200bp since then, making 10% a more likely starting point this time around. Proceeds from the sale will go towards refinancing debt from last year’s acquisition of Brasil Telecom. Telemar has BRL3.6bn in 1-year bridge financing due in July. It is followed by a BRL2bn facility due in December that it opted to take out after deciding against a September cross-border sale. Fitch has assigned the new bond transaction a BBB minus rating. The agency notes strong cashflow generation and an adequate financial profile, underpinned by local fixed-line. It says integration of Brasil Telecom should boost the competitive position of the company, particularly in mobile and corporate segments, and geographically complement fixed and broadband. Fitch expects net debt to Ebitda to be approximately 2x by end-2009. Banco do Brasil, Bradesco, Citi, Itau and Santander are joint bookrunners on the transaction. The issue is set to be the second from a true Brazilian corporate this year, following Odebrecht’s $200m offer last week, which traded up. Eletrobras is meanwhile expected to name banks soon for a dollar bond worth up to $600m. In the local market, Telemar is selling up to BRL3bn in debentures, including 2011 and 2012 notes, paying DI plus 115% and 120%, respectively, also to repay debt.

Brazil’s BNDES national development bank will lend BRL254m to Azul Linhas Aereas Brasileiras for the purchase of 4 planes, it says. Azul, a low-cost airline set up last year by JetBlue founder David Neeleman, plans to use proceeds to fund 85% of its purchase from Brazilian manufacturer Embraer. The 15-year facility pays TJLP, now at 6.25%, according to a BNDES official. It is the first BRL-denominated loan supporting the purchase of airplanes for use in the domestic market, the development bank says. BNDES will fund 50% directly and pass the other half through Banco do Brasil.

S&P Monday affirmed its BBB minus (stable) rating on Brazil despite ongoing macro deterioration and concerns about the debt load. “The low investment-grade rating on Brazil remains supported by a solid commitment to prudent macroeconomic policies during times when the international credit crunch and global economic slowdown have significantly affected the local economy,” says S&P credit analyst Sebastian Briozzo. “The reaffirmation of this commitment remains critical for Brazil to protect the recent improvement in fundamentals and to regain a sustainable growth trajectory once the global economy stabilizes.” The shop notes that president Lula’s strong popularity will likely facilitate implementation of policy to deal with significant economic challenges in 2009. However, “challenges will continue in 2010, a year with presidential elections, as the economy recovers only gradually,” says Briozzo. S&P expects Brazil’s GDP to decline by about 1% in 2009, compared with 5.1% growth last year. While complying with the primary surplus target will be increasingly challenging because of the underperformance of fiscal revenue, the agency expects longer-term implications for debt sustainability to be contained. S&P expects the general government deficit to reach 3.0% of GDP in 2009 versus 2.1% in 2008. “The government’s relatively high debt level and still-high interest burden remain major weaknesses to the ratings on Brazil,” says Briozzo. “These two factors will require fiscal responsibility over the medium term.” He adds that a reduction in external vulnerabilities provides additional cushion to weather the negative shock. “This is positive for the credit, because we worried that the likely deterioration of the sovereign’s fiscal position would put at risk the outlook,” says Goldman Sachs.

Sadia shareholders have voted to sue Adriano Lima Ferreira, the company’s former CFO, for his alleged role in the company’s BRL760m loss, which surfaced in September. The loss was related to an FX derivative contract that moved against Sadia when the BRL rapidly devalued. Shareholders representing over 63% of the equity outstanding met Monday to review a report on the derivative-related loss prepared by BDO Trevisan, a specialized auditor, according to Sadia. The report alleges that the executive shirked his fiduciary duties in allowing the risky derivative contracts to be signed, the company says in documents filed with the local regulator. Elsewhere, Aracruz shareholders voted in November to sue Isac Zagury, its departed CFO, for the same reasons.

Brazilian port administrator Santos Brasil plans to issue BRL200m in 306-day promissory notes. Santos expects to pay DI plus 4% and Itau is managing the issue, rated A-2 on a national scale, with Bradesco and Votorantim as co-managers. Proceeds will be mostly used to participate in auctions for new concessions within the next year in the southern, northern and northeastern regions of Brazil. Santos Brasil operates the port of Santos, in Sao Paulo state, and other ports in Brazil.

Moody’s has downgraded Magnesita’s corporate family ratings to Ba3 from Ba1 on the global scale and to A3.br from Aa2.br on the Brazilian scale. The ratings remain under review for possible further downgrade. The cut reflects Magnesita’s leverage, which by total adjusted net debt to Ebitda, was above 4.5x as of December 31. “We believe that its performance in the first 3 months of 2009 remained weak due to lingering unfavorable market conditions for the global steel industry that traditionally represents about 70% of refractories consumption worldwide, thus placing further pressure on certain of its financial covenants,” Moody’s says.

Six subsidiaries of Brazilian utility CPFL Energia plan to issue a combined total of BRL495m in promissory notes, CPFL says. The 360-day notes are expected to pay interest at 118% of DI. Funds raised from the operation will be used for the 6 units’ working capital. HSBC is managing the sale, rated A1 on a national scale and still pending regulatory approval.

LatAm equity funds saw outflows of $22m on the week ended April 1, as the latest economic data from Brazil pointed to another cut in 2009 GDP growth expectations and undermined hopes of strong recovery in 2H09, EPFR Global says. Brazil equity funds saw outflows of $20m. In comparison, GEM equity funds saw $867m in inflows for the week. Despite the exodus, LatAm equity funds’ performance was positive, up 1.87% on the week ended April 2, Lipper data shows. Meanwhile, EM funds jumped 2.31% and global small and mid-cap funds were up 2.12%.

Brazil’s Vale is not in talks to acquire Swiss-based mining powerhouse Xstrata, Fabio Barbosa, CFO of the Brazilian metals giant, tells LatinFinance. In last year’s pursuit of Xstrata for close to $90bn, Vale raised the hopes of lenders on the transaction, who collectively stood to reap over $100m in fees. But talks fell apart a year ago and have since appeared to remain dormant, despite Xstrata’s deteriorating market cap, which is down some 88% since a May 16 peak when shares hit £4,313. Unlike Xstrata, Vale has over the past 12 months maintained its relative position by market cap within the mining world at number 2 after BHP Billiton, and in June it raised over $12bn in an equity follow-on. The Brazilian company is known to have looked at Mexican fertilizer specialist Fertinal, and last week concluded its acquisition of coal assets in Colombia from Cementos Argos for $306m. The latter transaction is part of a strategic push by Vale into the coal business, it says. “Vale is seeking to build a coal asset platform in the [Colombia] to enhance our growth options in the coal business,” which already includes assets in Australia, China and Mozambique, says the company.