Category: Brazil

Brazilian meatpacker Independencia has temporarily suspended operations, while Moody’s cut it to B3 from B2. It is temporarily halting slaughtering of cattle at all of its 14 Brazil units, according to local press reports, due to cashflow problems, and will resume as soon as possible. Moody’s action follows the termination of a tender offer for its 2015 and 2017 last week, the agency says, noting that failure to reduce debt will mean sustained leverage levels above 6.0x. It remains under review for further downgrade. Fellow producer Arantes filed for bankruptcy protection in January, and investors say Independencia is also a candidate to seek protection. S&P placed Independencia’s B rating on credit watch negative.

Gerdau is in jeopardy of losing investment-grade status, as S&P has put the Brazilian steelmaker’s BBB minus rating on credit watch negative. The move “reflects the significant deterioration in Gerdau’s profitability and cash generation due to the adverse economic conditions, especially in North America and Brazil’s export markets,” the agency says. The company will be challenged to delever amid the economic downturn that S&P expects to continue through 2009. The agency expects to resolve the credit watch listing in the next couple of months, once the steelmaker’s plans to offset weaker markets become clearer.

Commerzbank is heard in final stages of talks to sell its Dresdner Kleinwort LatAm investment banking group, which is headquartered in Brazil. Executives at the firm say reports surfacing Thursday that Luiz Cezar Fernandes – founder of both Garantia and Pactual, two of Brazil’s most successful investment banking operations – is close to tying up a deal to acquire the banking unit are true. They decline to comment further. Fernandes is reported to be offering $90m-$100m for the asset, and said holding talks with Dresdner’s new owner, Commerzbank. Earlier this month, Dresdner officials confirmed the unit was being sold. It is not clear whether the deal would involve keeping Dresdner’s ex-Brazil business, which includes some utilities advisory and investment banking, as well as DCM for a small group of markets, including Chile.

Brazilian debt instruments were the most frequently traded emerging market debt instruments in 2008, according to EMTA. The $847bn in turnover represents a 25% drop from the $1.135trn in 2007. Brazilian volumes accounted for 20% of total EM trading, up from 18% last year. The sovereign’s 2040 bond remained the most frequently traded instrument in 2008 at $80bn, despite its volume being down 63% from 2007. Brazilian eurobonds saw turnover of $244bn, the highest total for that category from a single country. Argentina placed fourth in EM with $305bn in total securities traded, accounting for about 7% of the total. Mexico’s $205bn accounted for 5% of all volumes, notably down from the 22% it accounted for in 2007. In local markets turnover, Brazil’s $591bn also led EM, with Argentina’s $165bn placing it fifth. Mexico also plunged in local instrument trading, by 92% to $92bn from 2007 $1.2trn in 2007.

The MXP will suffer more severely under the global downturn than will the BRL, says Merrill Lynch. The shop expects the BRL to strengthen to BRL2.10, boosted by an expected improvement in global risk appetite in Q4. On February 25 the Brazilian currency stood at BRL2.38. A sizeable pool of FX reserves and commitment to intervention from the central bank should also help contain the risk of a sharp sell-off for the BRL, says Merrill. The MXP, on the other hand, should remain in the MXP14.50 per US dollar range over the next six months, with risks skewed to further devaluation, although it expects a strong rebound to MXP13.25 toward the end of the year as well. On February 25 the MXP traded at 14.93. “The US recession will lead to a deterioration of Mexico’s balance of payments given reduced export demand and a slowdown in remittance inflows, and is therefore expected to weigh somewhat on MXP performance,” the shop says. Merrill has revised downward its year-end forecasts for LatAm FX since January. It cut the BRL to BRL2.10 from BRL1.90, and the MXP to MXP13.25 from MXP11.50. The COP should fall to COP2,650 from 2,300; the CLP to CLP625 from CLP580, and the PES to 3.25 from 2.95, says Merrill.

Etesco, the Brazilian Petrobras contractor, is heard to be weeks away from wrapping up a $700m debt financing for the construction and operation of a new offshore drilling platform. The company and its co-sponsors, which include Mitsui and Nippon Steel, have locked in some $300m in commitments from ECAs, including Norway’s GIEK and Export Finance. Commercial lenders Bank of Tokyo Mitsubishi, Mizuho, Sumitomo Mitsui and ING are heard to be close to tying up a $400m 9-year facility for the deal, whose terms, including margins, were originally agreed upon in the summer of 2008. The deal, being done on a club basis, is heard to have been promised to the borrower starting at around 200bp-250bp and stepping up from there, presumably another 100bp, say bankers. But at those levels, the transaction would be substantially below today’s market and barely above some banks’ funding costs. One existing reference is AES Gener’s Campiche, a financing with similar a tenor and risk profile that was launched to a limited group this month. Campiche starts at 350bp over Libor and moves up to 450bp in year 10, well above what Etesco was originally offered. But one executive involved in Etesco says he believes that original level will have to be adjusted upwards, a fact that is unlikely please the project’s co-sponsors. The trouble for many contractors is that rising costs of capital are squeezing out the returns forecasted in the financial models they have built for their concessions. Odebrecht, which is looking for $1.3bn in debt financing for its twin platforms, appears to be at odds with its bankers on where to price its facility, say people away from the process. The impact on project’s viability is among its chief concerns, they cite the company as saying. Etesco is targeting an end of March close for its debt financing.

The World Bank has approved two loans for Brazil that together are worth $117.5m. The first loan, for $71.5m, will go to the state of Espirito Santo. The funds will be used to improve water quality and distribution. This loan has a maturity of 30 years and a grace period of three years. The second facility, for $46.0m, will go to the state of Ceara. The funds will be used to promote development by improving urban infrastructure and enhancing regional management capacity. It has a maturity period of 25 years and a grace period of 10 years. Both have interest rates over Libor.

Brazil homebuilder Agra and its investment partner Veromonte appear to have scored a coup in their purchase of a 62% stake in Abyara announced last week. However Morgan Stanley’s special situations fund appears to have posted a loss on the investment. Agra and Veromonte bought the stake from the target’s 3 founding shareholders, which held a combined 40%, and from Morgan Stanley, which had 22%. The latter’s shares were worth close to BRL160m ($100m at the time) in July 2008. Last week’s BRL38m sale price for the combined 62% stake implies Morgan Stanley’s 22% share was sold for BRL13.5m ($5.8m). While the BRL-denominated face value of the stake fell astronomically over the past seven months, this is not reflective of the fund’s overall performance in Brazilian real estate, nor of the loss it posted for the strategy that included the Abyara investment, claims a Morgan Stanley official. He declines to identify the true value of the loss in its Abyara play, citing confidentiality agreements. The special situations vehicle offset its long position in Abyara with other short positions and options on correlated investments, says the executive, who adds that many of the fund’s positions yielded substantial gains. A Morgan Stanley spokeswoman declines to comment. Real estate executives away from the process say either way you cut it, the loss in value on that investment is significant. Morgan Stanley’s investment banking division advised Abyara on the deal while Bradesco BBI advised Agra.

Itau Securities, the research, sales and trading arm of Brazil’s largest bank, has eliminated several prominent executives as part of a round of redundancies. A number of senior research analysts have been cut, say insiders. Among those heard let go are Tomas Awad, head of equity strategy and real estate, Marcelo Brisac, head of natural resources and mining research, and Luciano Campos, in charge of healthcare and education research. In addition, Sergio Tamashiro, who covers utilities, and Ricardo Fernandez, head of consumer, also left. Also heard among the casualties are Alexandre Guedes, head of equity research sales, and New York-based sales and research executive David Lineweaver. The named executives could not be reached for comment or direct confirmation, though a company source confirmed the departures. The losses are related to the markets downturn, as well as the merger with Unibanco.

Marcia Vorona, who until November was in charge of LatAm loan syndications at RBS-ABN AMRO, has resurfaced at Santander. The Brazilian banker has been named executive director in the Spanish bank’s LatAm structured finance group, and will report to Marcelo Castro, head of that group. She will be responsible for origination and structuring, but may also be involved in distribution and syndication. William Donovan, executive director in charge of LatAm syndications remains at his post, and the two are expected to work closely on deals going forward. In moving to Santander, Vorona rejoins several Brazil-based colleagues from her ABN AMRO days, since Santander acquired Banco Real in Brazil. As such, the move is a natural fit for Vorona, who started her banking career at Real in Rio. Santander appears poised for continued strength in LatAm loans, as it navigates the financial crisis with a relatively healthy and sizable balance sheet. A growing DCM platform has helped it parlay balance sheet plays into bond mandates for Petrobras and Pemex this year.