Category: Brazil

Aracruz has restructured $2.6bn in debt, most of which was related to FX derivatives, says the Brazilian paper and pulp producer. Some $2.1bn in derivatives related debt and $500m in trade-related loans was termed out to 9 years with spreads starting at Libor plus 350bp and stepping up to Libor plus 600bp, say bankers close to the process. The average rate of the total $2.6bn debt pile is Libor plus 460bp. Calyon, JPMorgan, Citi, Deutsche Bank, Santander-ABN and HSBC are among the banks involved in the debt renegotiations, according to Aracruz’s advisors. Itau BBA also held a smaller portion of the liabilities. Aracruz tapped local boutique Estater, the same shop that advised Votorantim on the acquisition of its stake in Aracruz, for advice on the loan restructuring talks.

SantelisaVale Bioenergia, one of Brazil’s largest sugar and ethanol producers, is exploring a sale of a stake that bankers say could be worth several hundred million dollars. Executives close to the company confirm discussions but decline to provide details, saying nothing has yet been decided. Privately held Santelisa, which came close to filing an IPO last year, is looking to sell a sizable chunk to a strategic or a financial buyer as it buckles under the weight of its debt. It took on BRL1.35bn in March 2007 to finance a buyout by a group of controlling shareholders. In July 2007, Goldman Sachs purchased a 19% stake in Santelisa for BRL400m, valuing the company at the time at some BRL2bn, or $1.1bn, using the exchange rate at the time. “I would say the company is probably worth well over $1bn today,” says a banker with knowledge of the assets, pointing to the company’s 20m ton annual crushing capacity. Last year, SantelisaVale was cited as a leading LatAm crusher, second only to Cosan. According to recently released data from the national industry association UNICA, the upcoming harvest will yield 498m tons, which means Santelisa alone will produce more than 4%. The company has 6 fully operating mills and 2 more set to go online. But falling sugar prices, a slowing economy and closure of the capital and loan markets have put it in a tight spot. Bradesco BBI and Itau BBA are advising Santelisa on its strategic options and will oversee any auction of a stake in the company, or of the entire asset. Bradesco is also Santelisa’s chief lender, providing shareholders with the BRL1.35bn credit line in 2007. Four other banks also make up the lending group.

Brazilian developer Brascan Residential Properties sees demand continuing and further opportunity for growth in Brazilian real estate, even as the number of projects drops and consolidation among builders slows. “Supply is down but demand continues, so there is an opportunity for growth,” says Luiz Rogelio Tolosa, Brascan Residential’s IR director says. He explains that consumption is holding up – middle-class first-time buyers still need homes – even if supply is dropping, as it typically does in downturns. The consolidation that has characterized the markets, and includes Brascan’s purchases of rivals Company and MB Engenharia last year, will likely slow significantly in the short-term, he says. The developer has forecast launching BRL2.5bn-BRL3.1bn in projects, compared to BRL2.7bn in 2008. Last week it kicked off a BRL200m share sale to existing investors for working capital. Tolosa says Brascan cannot get suitable long-term financing in the debenture market, which has seen spreads flare and maturities contract. The shares are selling for BRL2 – a 10%-12% discount to recent market prices – to encourage minority shareholder participation, he adds.

The sell-side is getting more dovish on Brazil, with several revisions to the Selic outlook. Goldman Sachs predicts a 50bp cut Wednesday, while previously it expected a 25bp reduction, although it did not rule out a 50bp cut. By the end of the year, it expects cumulative rate cuts of 300bp, up from a previous forecast of 250bp. Credit Suisse’s revised forecast reflects the same reductions. The shop expects cumulative rate falls of 300bp by the end of 2009 to 11.25% starting with a 50bp drop today. JPMorgan meanwhile predicts the central bank will deliver a 75bp cut in the Selic rate to 13.0%. “We expect an additional 75bp reduction in March and two more cuts of 50bp in April and June,” adds the shop.

In a press conference with Brazil’s president Lula, Venezuela’s Hugo Chavez said he will order the central bank to move $12bn in reserves to the government off budget discretionary spending fund (Fonden), media reports indicate. According to Venezuela’s central bank, the country’s reserves add up to $41.86bn and Chavez has said the optimum level of reserves is $30.00bn. A central bank spokeswoman tells LatinFinance that it has not made an official announcement on the transfer of funds and does not say if or when funds would actually be transferred. The announcement has analysts scratching their heads. Goldman Sachs says the move is “likely to further weaken the balance sheet of the central bank” and that it “should keep inflation high.” UBS says the “transaction is nothing but a monetary financing of the deficit and therefore, inflationary. Additionally, it leaves the country more vulnerable to a balance of payment crisis, a growing risk given the large external shock Venezuela is going through.” Headline inflation reached a high 30.9% in 2008 according to Goldman Sachs.

Advent International has promoted several executives, including some at its Mexico and Brazil offices. In Mexico City, it has promoted Alfredo Alfaro to managing partner and Luis Solorzano to MD. In Sao Paulo, it has promoted Patrice Etlin to managing partner and Luiz Antonio Alves to MD. Alves tells LatinFinance that the promotions “show Advent’s commitment to LatAm despite this imported crisis.” He adds that while M&A should see reduced activity this year, private equity investors can expect opportunity in industries such as retail, education and infrastructure. “Funds with cash are finding opportunities to invest.”

S&P has chopped its outlook on Brazil-based Banco Citibank to negative from stable, citing the erosion in the stand-alone credit profile of parent Citi and, consequently, on the expected level of support to the operations of its Brazilian subsidiary. S&P also affirms the BBB minus long-term global scale counterparty credit rating revises the outlook on the brAAA/brA-1 Brazil national scale counterparty ratings to negative from stable and affirmed them. Citi, which is reorganizing into 2 operating units, posted a Q4 loss of $8.3bn. Net losses for 2008 add up to $18.7bn, the bank says.

Brazilian meat and poultry processor Sadia is looking to extend tenor on a BRL1.5bn 1-year bridge loan it raised from local banks in September following a BRL760m derivatives loss it recognized earlier that month. Sadia clinched the emergency facility with a small group of banks last year, including Bradesco and Banco do Brasil, a company official tells LatinFinance. The executive notes that the company is studying various options to address the short term maturity, and says the company has a comfortable cash position. Sadia aims to extend the debt maturity as long as possible, says the official. In a report published Tuesday in local paper Valor Economico, Sadia’s chairman Luiz Furlan says the company plans to cut 350 administrative jobs to save some $18m per year.

Brazil’s Sadia is studying a host of offers from private equity investors, a company official tells LatinFinance. The poultry processor is rumored in the local market to be seeking to raise a chunk of equity capital – up to BRL1.5bn – to help shore up its balance sheet following a BRL760m derivatives hit in September and a subsequent emergency bridge loan of BRL1.5bn. The company official denies Sadia has actively sought the funds and insists that any amount rumored for a potential deal is market conjecture. But the executive acknowledges Sadia is evaluating several proposals from private equity funds seeking a stake in Brazil’s leading poultry processor. “It’s like we have a flock of birds flying overhead,” says the executive in an attempt to describe what he calls a cacophony of overtures from a variety of investors.

Moody’s has placed the ratings of 8 Brazilian consigned loan transactions on review for possible downgrade. The loans on review are BMG’s consigned loans V, VI and VII; Fundo Bonsucesso’s series 2006-1; Banco Cruceiro do Sul’s Verax II series 2006-1 and 2007-1; and Intermedium’s Series 2007-1 and 2008-1. The action reflects Moody’s concerns with respect to deterioration in the business environment in which Brazilian small and medium-size banks operate, challenging their business sustainability. BMG’s loans are rated Baa3, Bonsucesso’s are rated Baa2, Banco Cruceiro’s are rated Baa2, and Intermedium’s are rated Baa3.