Category: Brazil

Brazilian builder Camargo Correa has agreed to buy the 50% it does not already own in VBC Energia from Grupo Votorantim for BRL2.56bn. VBC is a holding company which has a 28% stake in electric generator CPFL. The purchase is expected to be complete by February 20. Votorantim has been selling assets and maneuvering to cut costs since writing down BRL2.2bn last year in derivatives losses. On January 9, it agreed to sell a 50% stake in its Banco Votorantim unit to Banco do Brasil for BRL4.2bn. Its pulp and paper unit Votorantim Celulose e Papel agreed January 20 to pay BRL2.7bn for a 28% stake and control of Aracruz Celulose, with the help of an equity commitment from BNDES, creating the region’s largest paper producer and consolidating operations.

Brazilian miner Vale has agreed to pay $1.6bn for two mining assets belonging to Rio Tinto. It will pay $750m for an iron ore open pit mining operation in the state of Mato Grosso do Sul, called Corumba, and $850m for a potash mining project in Argentina’s Rio Colorado region. The assets are being paid for with cash, according to a company spokesperson. The acquisition of the latter marks a big push by Vale into the fertilizer business. Potash yields nearly as much as iron ore in the international market and provides a diversifier away from metals oriented resources, according to a company official. “The acquisition of potash assets is aligned with Vale’s strategy to become a large producer of fertilizers to benefit from the exposure to rising global consumption,” says the company in a statement. Completion of the Corumba transaction is subject to regulatory approvals, but no approvals are required for the potash transaction, Rio says. Rio has been selling assets to reduce debt by $10bn by the end of this year. “Sales processes are most advanced for Packaging, Energy America and Minerals,” says Rio. On the other hand, Vale is eyeing acquisitions and is rumored to be in talks with Australia’s Woodside Petroleum to buy a stake in Brazilian gas blocks. A Vale spokeswoman does not confirm the rumor, only saying that the company is considering various opportunities. The companies do not state which banks advised on the deals.

The IMF has chopped its forecasts for growth in Brazil and Mexico, predicting recession in the latter, amid deterioration in the global outlook. For Brazil, the IMF foresees expansion of 1.8% and 3.5%, respectively in 2009 and 2010, lower by 1.2% and 1.0%, respectively, versus a November prediction. Mexico is set to contract by 0.3% and expand 2.1%, respectively in 2009 and 2010, lower by 1.2% and 1.4%, respectively, versus a November prediction. This compares to 5.8% and 1.8% growth in Brazil and Mexico, respectively, last year, according to the IMF. Both main LatAm economies are predicted to do worse than EM as a whole. The IMF foresees 3.3% growth in 2009, rising to 5.0% in 2010 for emerging and developing economies as a whole. “World growth is projected to fall to 0.5% in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy,” says the fund. “A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged,” it adds, predicting 3.0% expansion next year. “The outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions,” the fund cautions.

LLX Logistica subsidiary LLX Minas-Rio says it has executed definitive financing agreements worth BRL1.3bn with BNDES and other financial institutions. The financing has a total amortization schedule of 12 years and a 2.5-year grace period, says the borrower. The transaction was structured as a project finance with a debt/equity ratio of 73%/27%. The ratio is a relatively favorable one for LLX: In Chile, Marubeni and Antofagasta are seeking debt financing for their own 12-year mining project, but have structured it with a 50% debt to equity ratio. The 50% in the case of this project equals around $1bn. From that total amount of BNDES funds LLX is to receive, 50% will be disbursed as a BNDES direct loan, while the other 50% will be on lending by Unibanco and Itau. Funds will be used to enable iron ore handling from Anglo American mines in Minas Gerais. “This financing is positive news for LLX because it reduces the risks regarding development funds for the LLX Minas-Rio Port,” says Itau. Still, the shop sees the stock underperforming the rest of the market in 2009 since investors may demonstrate higher risk aversion to long-term projects.

Lack of financing puts Brazil’s homebuilders in a bind, according to Fitch, and some private equity bankers say they are beginning to see investment opportunities in the sector. “I expect continued consolidation in the sector. Situations with debt payment and lack of financing will produce investment opportunities,” says a US-based banker whose shop has several investments in Brazil. A Sao Paulo-based banker says he has had some conversations with companies in the sector. “Many of these companies will go through restructuring. Many of them can’t get financing and need to bring in a private equity partner,” he says, adding that companies that publicly-traded companies are on the list. Fitch has responded by downgrading Brazilian homebuilders’ rating and assigning a negative outlook. The affected companies are Cyrela, Even, Gafisa, Trisul and Company. Consolidation of the Brazilian homebuilding sector is a real possibility as the downturn continues, Fitch says. The agency adds that consolidation has already begun. During the second semester of 2008, Gafisa bought Tenda and Company and Brascan merged.