While economists predict Chile is likely to cut its monetary policy rate by as much as 75bp tomorrow, Peru is expected to keep rates unchanged. JPMorgan forecasts that in Peru, rates will stay at 6.50% as inflation remains high at 6.65%, down only slightly from its November peak of 6.75%. BBVA says the same, adding that “credit to the private sector continues expanding by more than 30% year over year.” Regarding Chile, where the rate is 8.25%, local firm Inversiones Security forecasts the central bank will cut by 25bp to 50bp, as CPI dropped 1.2%, while the consensus was for a 0.6% fall. Barclays and JPMorgan expect Chile’s central bank to be more aggressive and loosen by 75bp.
Category: Daily Brief
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Brazil Bags New 10-Year Benchmark
Brazil priced Tuesday a $1bn 2019 bond at 98.135 with a 5.875% coupon to yield 6.127%, or UST+370bp. Following Mexico’s $2bn December bond and positive moves in both BRL and Bovespa, the sovereign seized a window to establish a new 10-year benchmark, even though it was not in urgent need of funds. The 5.875% coupon is Brazil’s lowest ever on a dollar bond, according to Dealogic, and the new issue premium is estimated to be around 50bp. The transaction was oversubscribed, according bankers on the transaction, declining to give the total book size. The 130 accounts in the book came about 60% from North America, roughly 25% from Europe and about 8% from Brazil. Goldman Sachs and Merrill Lynch managed the sale, with Banco do Brasil as co-manager, drawing criticism for whispering 350bp pricing pre-launch. Investors and bankers away from the transaction say a new 10-year helps Brazil’s corporate issuers – both by preventing crowding out locally and setting a benchmark for cross-border issuance – and also highlights demand for LatAm paper. “Brazil will not be the last,” says David Rolley, vice president and portfolio manager at Loomis Sayles, which manages more than $10bn in EM debt. “We think there will be a lot of hard-currency supply this year in Latin America.” He adds that it will be difficult for local Latin companies to borrow overseas, so sovereign dollar issuance helps maintain domestic liquidity. He expects sovereigns like Brazil and Colombia to re-emphasize dollar and euro funding this year. Brazil last hit the dollar bond markets in May shortly after getting raised to investment grade, reopening for $500m its 6.000% of 2017 notes to yield 5.299%.
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Colombia Seizes Window With 2019
Colombia has priced a $1bn 2019 bond at 99.136 with a 7.375% coupon to yield 7.500%, or 502.9bp over UST. Bankers away from the deal say Colombia paid about 50bp-60bp new issue premium, based on its 2017s opening Tuesday at yields of around 6.95%. This compares to roughly 40bp on last month’s Mexico issue. The Ba1/BBB minus bond through Barclays and Morgan Stanley was heard trading up 25-50 cents in the grey market. The transaction saw demand of just over $3bn, according to the issuer, from 141 accounts, about 66% of which were based in the US, 20% in Europe and 10% in Colombia. “We saw that there were good conditions and decided to execute the trade, anticipating harsher conditions in the future and other countries and corporates trying to access funds,” Maria Escobar, head of international capital markets at Colombia’s ministry of finance and public credit, tells LatinFinance. “We thought if we were the first issuer and a good issuer we could re-open the market for sovereigns and corporates,” she adds. Escobar says Colombia has always been active in pre-funding, but conditions last year did not allow this. The sovereign secured $2.4bn loans from multilaterals in October as a backup. Now, she says the sovereign will decide whether to disburse $1.4bn of those funds, or to use the full $2.4bn and keep the rest to pre-fund 2010. More details will be available when Colombia announces its 2009 financing plan later this month. Colombia last hit the international bond market almost a year ago, reopening for $650m its 7.375% of 2017 bond to yield 5.997% and $350m in 7.375% 2037 bonds to yield 6.601%.
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Chile Plans Spend, May Issue Bonds
Chile plans to spend $4bn to boost its economy and may sell international debt for the first time since 2003 to help fund the stimulus. The sovereign plans to increase spending this year by about 1% of GDP and cut taxes by the same amount, it says, as well as inject $1bn into state-owned copper producer Codelco. To pay for the package, Chile would need to suspend fiscal guidelines introduced in 2000 that force governments to aim for a budget surplus, and is expected to temporarily cut the surplus target to 0.0% from 0.5% of GDP. The government expects the measures will allow the economy to grow 2%-3% this year. Finance minister Andres Velasco was quoted in local and wire reports Tuesday saying the government may offer both domestic and foreign bonds to help finance the plan. “The measures proposed by the authorities appear well focused and if properly executed could help bolster Chile’s economy against global recession, falling commodity prices and tighter external liquidity conditions,” says Casey Reckman, associate director at Fitch. “Although the government anticipates a deficit of 2.9% of GDP in 2009, Fitch does not expect Chile’s fiscal and external solvency indicators to deteriorate significantly as the stimulus plan will be financed primarily with resources from the $19.1bn economic and social stabilization fund,” she adds. President Bachelet says that the package, which is equivalent to 2.8 percentage points of GDP, aims to keep growth above 2.0%. Morgan Stanley forecasts growth of just 1.5% in 2009, while Merrill Lynch says it will expand by 2.3%.
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Cabei Adds to Taiwan Issue
Cabei has priced a TWD1.8bn ($54m) 2-year fixed rate bond in the local Taiwan market at par to yield 2.60%. The issue is the second tranche from a TWD7.0bn program, following the mid-December issue of TWD1.3bn. Three institutional investors bought into the deal, Cabei treasurer Felix Magana tells LatinFinance. It featured a gradual, non-public book building process where the size of the issue is tailored to investor demand. Three different buyers participated in the first tranche, he says. “It was very important to launch a deal at the end of the year as a message to the markets,” Magana explains. He says a third tranche can be expected later this month, with a fourth likely in February. The lender rated A2/A minus is also structuring 2 issues in other countries for January or February, he explains, declining to state where. Cabei has now issued 5 times in Taiwan, a member nation of the Central American multilateral bank. HSBC is sole bookrunner on this and the first series of TWD issuance.
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GXS Buys Brazilian B2B
Maryland-based GXS has acquired Brazil’s Interchange Servicos, an electronic data interchange company. GXS, which is owned by Francisco Partners, bought Interchange from Banco Real, Citi, Itau-Unibanco and EDS, a subsidiary of Hewlett Packard. As part of the transaction, Interchange will now be integrated into GXS Brasil, the companies say in a statement. Neither financing terms nor deal value were disclosed. The companies did not return calls and Francisco Partners declined to comment.
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Santander Able to Buy in Peru
Pacific Credit Rating has maintained its A financial strength rating for Banco Santander Peru, citing the bank’s sound expense and investment policy, risk management, strength and experience at the parent company and its potential to grow through acquisitions. “The bank has not announced any concrete plans to make acquisitions, but it is able to buy smaller banks this year,” says analyst Eduardo Lora. It could buy banks that cater to individuals, to diversify away from corporate banking, where Lora says it has been focused.
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Arantes Hits CC, Fitch Sees Rollover Trouble
Fitch has cut Brazil’s Arantes to CC from B, including its $150m senior unsecured notes, and put the ratings on watch negative. “The downgrade reflects Arantes’ reduced financial flexibility and potential difficulty to rollover short term lines of credit and meet other near-term debt obligations, including BRL220m of short-term bank debt,” says the agency. It adds that on December 19, Arantes missed an $8m interest payment on its senior unsecured notes due 2013. “At that time in a letter to certain creditors, the company indicated that the interest payment be made by January 10, 2009 and within the cure period,” says Fitch. However, the agency says the combination of a moderate cash position and strong liquidity restriction in the national and international markets has considerably raised Arantes refinancing risks. Arantes is one of the top 10 largest Brazilian beef exporters.
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Termoemcali Gets Rating Reprieve
Fitch has upgraded Colombia’s Termoemcali’s $153.7m restructured senior secured notes due 2019 to B minus (stable) from CCC to reflect improved flexibility to meet debt service obligations primarily from expected reliability payments and to a lesser extent from gas sales. “The rating action also considers the reduced dependence on the capacity (Tranche E) payments from Emcali (rated CCC, stable outlook by Fitch), which constrained the previous rating,” says the agency.
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Careless Whisper Trips Brazil
Fumbled price guidance tarnished Brazil’s international bond market comeback, but both it and Colombia managed to lock in scarce cash with some otherwise well received and opportunistic issuance. Investors say Brazil’s first bond issue since May was undermined by overly tight pre-launch price whispers of “mid 300s” over US Treasuries – taken by the market to mean 350bp. The $1bn 2019 Ba1/BBB minus deal launched at 375bp, priced at 370bp and traded 25 cents down in the grey, says a dedicated EM investor who opted not participate. Typically, a transaction of this type would be whispered slightly wider to gauge appetite, and preferably tightened as the order book fills to reach an optimal level for buyer and seller. The sovereign was not helped by pre-launch volatility and a competing deal from Colombia, or the fact that markets generally are trying to find a level. Bankers away from the transaction were critical of pricing, but they nonetheless took the placement as a positive sign for both issuer and markets. “They came out a bit too aggressively and had to widen,” says one. “They were fighting a little on the price,” adds another. Goldman Sachs and Merrill Lynch led the Brazil transaction. The former did not return calls and the latter declined to comment.