A February 3 Daily Brief entitles “Coke Femsa Fizzes Through Sovereign” misidentifies the investor base that consumed most of the bond transaction. The majority of buyers were US high-grade.
Category: Daily Brief
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Fitch Downgrades Jamaica to RD
Fitch has downgraded Jamaica to RD from CCC after the sovereign’s closed its domestic debt exchange. The agency says the deal constitutes a coercive debt exchange and that that more than 10% of the total central government’s foreign currency denominated debt to private creditors was subjected to the exchange. Simultaneously, and somewhat confusingly, Fitch also upgraded Jamaica’s long-term foreign and local currency IDRs to CCC and placed them on rating watch positive, as the exchange was successful and could lead to the approval of the $1.3bn IMF stand by program. Fitch analysts did not return calls seeking clarification. Jamaica estimates that the participation rate has already reached over 90% of eligible securities. This in turn will yield important fiscal savings in terms of debt service, says Fitch. Fitch notes that the foreign currency denominated securities issued in international capital markets are not affected by the debt exchange. It affirms the sovereign at CCC.
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Fitch Sweetens Cosan Outlook
Fitch has placed the BB minus ratings of Cosan Combustiveis e Lubrificantes (CCL) on rating watch positive and Cosan’s BB minus ratings on rating watch evolving. Cosan has agreed to a possible merger of its sugar and ethanol, cogeneration and fuel distributions units with Shell’s Brazil operations. The merger will generate two JVs, one focused on sugar and ethanol and co-generation businesses, the other on fuel distribution. As part of the merger, Fitch expects CCL to be fully transferred to the fuel distribution JV. If the transaction goes through, Cosan will become an equity participation company with stakes in both JVs and in other businesses that will not be a part of the merger, such as logistics, lubricants and agricultural land development. CCL’s positive rating watch reflects a strengthening operating and financial profile of the company after the association. The fuel distribution JV will benefit from Shell’s contribution of unleveraged assets that will generate a steady and relatively predictable cashflow, and from the stronger business profile associated with the larger combined size and market share, says Fitch. Cosan’s evolving rating watch status reflects the uncertainties on the final capital structure of the sugar and ethanol JV and the expected equity participation characteristics of Cosan, with its remaining debt subordinated to the operating companies. Cosan and Shell will each contribute $4.9bn in assets to both JVs. On a combined basis, Cosan will contribute $2.5bn in net debt and Shell $1.6bn in cash to both JVs, but it is not clear at this point how much debt and cash will be allocated to each, Fitch says.
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Peru to Keep Rates Unchanged
Market consensus is that Peru’s central bank will keep the monetary policy rate at 1.25% today. Morgan Stanley continues to expect the bank will keep the policy interest rate on hold at 1.25% and expects monetary tightening during the second half of this year. Bank of America Merrill Lynch agrees that the rate will stay at 1.25% until the second half of 2010. It expects annual inflation to increase to 1.5% by the end of 2010 from 0.1% at the end of 2009.
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Argentina Names Kirchner Friend to Lead CBank
Argentina’s President Cristina Fernandez de Kirchner will name Mercedes Marco del Pont, president of state-owned Banco de la Nacion Argentina, as head of the central bank, replacing the resigned Martin Redrado. Congress must still approve the choice of Marco, a former congresswoman who is seen as a Kirchner loyalist. “The fact that well-respected economist Mario Blejer didn’t accept the post should be considered by the market in a negative light,” RBS says in a research note. “The BCRA’s independence, however undermined during Redrado’s term, is likely to be wiped out going forward,” it adds. RBS expects the Bicentennial Fund plan, where $6.6bn in central bank reserves would help to settle up with creditors and pave the way for a return to borrowing internationally, to be implemented soon after her appointment. “There is growing speculation that Marco could spearhead government favored changes in the central bank charter, since when as a lawmaker she sponsored a project that was perceived to limit the autonomy of the central bank,” adds Goldman Sachs. It also notes that the government still plans to launch an offer to holdouts as soon as it secures regulatory approval in the relevant jurisdictions. Redrado was dismissed for not backing Fernandez’s Bicentennial Fund plan.
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Nestle Percolates Mexico Investment
Multinational food company Nestle says it will invest MXP5bn ($390m) in Mexico over the next 3 years. It aims to strengthen its production capacity and infrastructure in that market, said CEO Paul Bulcke during the World Economic Forum meetings in Davos, according to a company statement. A major part of the MXP5bn will be invested in the Nescafe soluble coffee plant in Toluca. Nestle will increase the facility’s capacity by 40%, which will make it the biggest soluble coffee plant in the world.
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Mexichem Buying INEOS Fluor Unit
Mexican chemical producer Mexichem has agreed to acquire the fluor unit of INEOS Group, a UK-based manufacturer of petrochemicals. The transaction is estimated to be valued at around $300m-$350m, or 5x Ebitda, according to a Mexico-based equity analyst who covers Mexichem. The analyst also estimates that this acquisition will contribute to a sales increase of 7%-14% to Mexichem. The buyer is paying cash for the asset. “Mexichem has the resources to pay without increasing its debt levels because in late 2009 it issued $350m in bonds,” the analyst says. Moody’s says that the acquisition will not affect Mexichem’s Ba1 rating or its stable outlook. Meanwhile, an INEOS spokesman in London says that the divestiture of the fluor unit is part of the company’s efforts to strengthen the balance sheet. He adds that Barclays advised the seller.
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Wong to Unload Cencosud Stake
Peru’s Wong is selling its stake in Chilean retailer Cencosud, according to a regulatory filing. The planned auction of 49.75m shares would bring in CLP91.64bn ($170m) at Wednesday’s price. Wong acquired the shares – equal to a 2.3% stake – when it sold its supermarket chain to Cencosud in 2007. It does not indicate when it plans to sell the shares. Cencosud closed Wednesday at CLP1,842, down 1.4% from the previous day.
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DomRep Government Authorizes Bond Issue
The Dominican Republic has authorized the finance ministry to issue up to DOP21bn ($583m) in bonds to stimulate local credit markets, the president’s office announced. The issue will be done in 6 tranches. A 2013 tranche of up to DOP4bn will have a 12% coupon, a 2015 tranche of up to DOP4bn will have a 14% coupon, and a 2017 tranche of up to DOP4bn will have a 16% coupon. Still pending are the coupons on 3 more tranches of up to DOP3bn maturing in the same years. Previously, the Dominican Republic had unveiled intentions of coming to international markets in Q1 2010, saying it wanted to borrow $500m-$600m. Bankers had expected a 10-year bond through Barclays and Citi.
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Pemex Rings MXP DCM Revival
Starved of sizeable domestic corporate issuance for months, Mexican investors today are set to get a chance to fill up on an expected MXP10bn-MXP15bn in new Pemex bonds. The state-owned oil producer can choose at the time of the sale between 5-year MXP-denominated floaters and 10-year fixed-rate notes in MXP or UDIs. Proceeds are marked for debt repayment, investment and general corporate purposes. BBVA, HSBC and Santander are managing the sale, rated AAA on a national scale. As with its pair of MXP10bn issuances in April and May of 2009, Pemex offers a hefty transaction that could help open up local DCM, as last year’s dispute between institutional investors and issuers over bond covenants and sale protocol has made it tough for all but the county’s bluest-chip corporate borrowers. It would be the first corporate offering in Mexico since Holcim Apasco priced a 2013 MXP950m trade receivables securitization in December, according to LatinFinance data.