Category: Brazil

Colombian power generator ISA is considering tapping the cross border bond market in the latter half of the year to finance its many projects in Brazil, Colombia and Peru, CFO Camilo Barco tells LatinFinance. Any deal would depend on an appropriate financing window, he adds. One option under consideration is issuing a 3-tranche cross border bond, possibly in the $500m area or larger. Proceeds from each tranche would go to ISA’s units in Brazil (CTEEP), Colombia and Peru. It is seeking tenors as long as 10 years, though depending on market conditions, it could settle for 7 or even 5 years, says Barco. For CTEEP alone, Barco sees potential financing for the equivalent of up to BRL500m. CTEEP has been an active issuer in the local Brazilian bond market, but has yet to issue a standalone cross-border bond. As a utility with major power projects of national importance, CTEEP has historically been a big user of BNDES funds. Some BRL300m has already been approved for the coming year with more to come still, says the CFO. Local market funding, especially in Peru, is also an attractive option, notes Barco. “In Peru you can issue an 8-year note at very competitive rates,” he notes, without detailing the expected all in cost of such an issue. ISA’s Peru unit has been active in the local markets in the past, he adds. In December, ISA reopened its 2026 local Colombian notes for COP104.5bn ($46m) at an all in rate of IPC plus 7.1% via Citi, Correval and Bancolombia.

Economists expect Brazil’s central bank to cut the Selic rate, which stands at 12.75%, in March, and continue doing so throughout the middle of the year. Barclays and Morgan Stanley expect a 100bp cut in March. The bank made a 100bp cut in its last meeting, held in late January. Barclays says Brazil faces a sharp drop in industrial production, several investment projects that have been cancelled, an increase in unemployment and, consequently, weaker consumption. The shop says it expects the Selic to drop to 10.25% by mid-year with risks to a sharper cut. Morgan Stanley, meanwhile, sees the Selic dropping to 9.75% by mid-year. Local Selic futures in Brazil point to a reduction to 10.5% by the end of 2009. Morgan Stanley maintains its expectation for zero GDP expansion in Brazil this year.

The Federal Reserve says it is extending its liquidity programs to four EM countries, including Brazil and Mexico, by six months through October in light of the continuing strains in many financial markets. The program supports the provision of USD liquidity in amounts of up to $30bn each, according to the Fed. “The big news would have been if the program was ended,” says Rodrigo Valdes, chief LatAm economist for Barclays. “This just means we’re not out of the woods in terms of the global financial condition,” he adds. The Fed is providing similar lines to other central banks, including the ECB and ones in Australia, New Zealand, Denmark, the UK, and Switzerland.

UBS Pactual, the Brazil investment banking and asset management unit of UBS, may escape a new bonus policy that says most director-level executives will receive their entire 2008 bonus in deferred compensation, with no cash. The measure, which doesn’t apply to MDs and EDs with contractual guarantees, has not been officially announced, though senior UBS officials hinted at the decision last week. Details on the policy, including what exactly constitutes deferred compensation, are to be announced February 10. Brazil executives, however, claim their unit has its own bonus pool, and both senior and junior level bankers and asset management executives are expected to share in that pool and receive cash, in addition to the deferred component. News of the zero cash policy last week caused outrage within the senior ranks at UBS, say people close to the firm. A UBS spokesman declines to comment on Brazil bonus expectations, noting the firm doesn’t break out bonuses by region.

Brazilian steelmaker CSN has approved a buyback program of up to 9.72m shares. The amount represents about 2.2% of its 444.5m shares outstanding. The program runs through February 25. CSN shares closed Monday at BRL35.20.

Moody’s has upgraded Rio Grande Energia’s senior unsecured local currency debentures to Ba1 on the global scale and kept it on review for possible further upgrade. The issuer has BRL203.8m in senior unsecured debentures due 2009 and BRL26.2m senior unsecured debentures due 2011. The upgrade follows Moody’s recent upgrade of the level of supportiveness of Brazil’s regulatory environment (SRE) for regulated electric utilities. “RGE’s ratings reflect its adequate credit metrics for the Ba1 category along with the implicit support of its parent company CPFL Energia,” says the rating agency. It adds that RGE will likely experience negative free cashflow from 2009 through 2011 that will result in an increase in indebtedness, though still compatible with the Ba1 rating. RGE is a fully regulated electricity distribution company with net revenues of BRL1.67bn and net profit of BRL156m in the 12 months ended September 30.

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.