This is the last Daily Brief until January 5, 2009. Happy Holidays to all our readers.
Category: Daily Brief
Posted inDaily Brief
Citi Joins Caixa For Brazil Remittances
Citi has teamed up with Brazil’s Caixa Economica Federal to tap into the flow of remittances from citizens living abroad, a flow of roughly $7bn a year. The new service, which will be available in H1 2009, is intended to boost remittances by expediting the process and reducing operating costs. “This process is in line with the policies of governments worldwide, including the Brazilian government, of encouraging the use of formal tools to transfer such resources,” says Citi, which has been in the remittance market since 2006. There are over 4m Brazilian citizens living abroad, including over 1m in the US, 320,000 in Japan and 300,000 in Europe, says Citi. Economic downturns in the US and Spain, inflation and a weaker dollar will cause a fall in money transfers from LatAm migrants for the first time this decade, according to the IDB’s MIF unit. Migrants from LatAm and the Caribbean will send some $67.5bn to their homelands in 2008, against $66.5bn in 2007, some 1.7% less year-on-year when adjusted for inflation, MIF predicted in October. Until last year, remittances to the region had grown by double digits every year, says MIF, which says this is the first drop since it started tracking these flows in 2000.
Posted inDaily Brief
Crisis Uproots CentAm/Caribb Advantage
The global financial crisis has reversed the typical relationship between Central America/Caribbean credit and the bigger LatAm economies, which are beating the former on a returns basis. CentAm/Caribbean has historically been a diversifier that outperforms in a bear market and underperforms the rest of the region when markets go up. However the JPMorgan CACI index, which tracks CentAm/Caribbean sovereign and corporate credit, is down 18.7% in the year to December 18 on a USD total returns basis. This compares to a loss of 12.1% during the same period for the EMBIG, which tracks the bigger sovereigns. “The market is upside down. It’s not really fundamentals driving the market, it’s technicals,” Franco Uccelli, a VP for strategy in the LatAm research group, tells LatinFinance. “Once the market goes back to normal, we’ll return back to the normal trading performance of Central America and the Caribbean,” he adds. According to the analyst, this temporary dislocation will likely not be corrected until mid-2009 or H2. In the year to date, CentAm/Caribbean corporates have lost 28.8% and sovereigns declined 17.0%, according to the CACI. Grenada is down 51.9%, Belize off 46.0% and DomRep dropped 42.6%. The best performers were Costa Rica (-2.7%), Barbados (-6.9%) and Trinidad & Tobago (-7.0%), amid a flight to quality. Despite 2008 losses, investors should still consider CentAm/Caribbean credit for its typically low beta performance and the fact that it is less correlated to the wider market. “It’s a nice way to diversify your investment portfolio,” says Uccelli. A leading gripe from the buyside is lack of liquidity, and the last two months have been thin, but there is improvement. “We’re starting to see some liquidity coming back . . . that’s a good sign,” says Uccelli. The CACI was up 7.55% last year and returned 12.63% in 2006.
Posted inDaily Brief
S&P Cuts DomRep Ratings
S&P has lowered the DomRep’s long-term sovereign credit rating to B (stable) from B+ due to a deteriorating economic outlook. Already in 2008, says S&P, fiscal slippage and high oil prices have led to an expected 4.5% of GDP general government deficit and 10% of GDP current account deficit. In 2009, S&P estimates that real GDP growth will slow to just 1%, led by diminished external demand. This, says the agency, is already seen with a sharp slowdown in tourism receipts, remittances, and free zone exports beginning in the second half of 2008. In addition, monetary tightening will dampen credit growth, consequently hurting domestic consumption and investment.
Posted inDaily Brief
IMF Could Lend $800m to El Salvador
The IMF says it has agreed in principle to loan about $800m to El Salvador to support the country’s economic program for 2009. However, Savadoran authorities intend to treat the arrangement as precautionary and do not intend to draw on it, the IMF notes. An IMF spokesman says that the loan would have 5 instalments and a grace period of 2 years and 3 months. The repayment period is two years after each tranche. If El Salvador never uses the loan, it will pay a commitment fee of 0.25%, but if the country does draw, it will have to pay a variable interest rate that is currently around 1.5% plus a premium of 1.87% for the first tranche. Subsequent drawings, says the spokesman, will have an additional premium of 1.0%.
Posted inDaily Brief
Argentine Food Producer Eyes Bonds
Shareholders in Argentina’s Molinos Rio De La Plata have voted to issue up to $150m in bonds, the food conglomerate says. The sale could be in dollars or pesos, and in the local or international market. Details will be set at a later date, Molinos says.
Posted inDaily Brief
Mexico Rethinks Local Debt
Following a surprise $2bn dollar bond placement last week, Mexico plans to boost its domestic bond sales in Q1 2009, Hacienda says. It will double sales of its 20 and 30-year fixed-rate bonds to MXP2.0bn every 6 weeks and also sell MXP2.5bn in 10-year bonds every 6 weeks, up from MXP1.0bn in Q408. The government also aims to auction MXP4.5bn of its 3-year bond monthly, up from MXP3.1bn currently. The new plans come after it pared back sales in October of its long-term peso bonds through year-end, and offered to buy back up to MXP40bn of bonds. The repurchases will not continue. Mexico reopened international bond markets for EM issuers with a tightly priced $2bn 10-year 5.950% benchmark via Morgan Stanley and Goldman Sachs that took out a third of the sovereign’s 2009 funding needs.
Posted inDaily Brief
Telefonica Merging Peru Operations
Telefonica del Peru, a division of Spain’s Telefonica, says shareholders have approved a merger with Telefonica Moviles Peru, also owned by the Spanish company. The union is slated to be effective December 31. As part of the deal, TdP says it will absorb all of Telefonica Moviles’ shares. As a result, its market cap will increase to almost $933m from about $839m, according to the firm. Victor Miranda, an analyst with Pacific Credit Rating in Peru, says the move will make TdP the market leader in mobile communication, as Telefonica Moviles has a 60% share. The second largest player is Claro, with a market share of about 30%, says the analyst. Officials from Telefonica and its Peru subsidiaries were not available for comment.
Posted inDaily Brief
UBS Neutral on D&S After Bid
UBS Pactual has given a neutral rating to DyS stock after Wal-Mart announced plans to acquire the company for about CLP259.4 per share, or $2.8bn. UBS believes that “revenue expansion is the most significant challenge for DyS . . . as penetration of supermarkets in Chile is high [and] non-organic expansion plans for the largest players appear limited by the country’s antitrust authorities and competition is very strong.” The shop also says DyS faces the challenge of expanding internationally to get exposure to less mature and faster growing markets, which supports expectations of a possible foray into the Peru market, where Wal-Mart does not have a presence. “DyS had already opened an office in Peru and had plans to open stores in a smaller format. But with Wal-Mart, it is possible they may decide to open larger format stores,” says Francisco Errandonea, head of equity research at Santander Investments in Chile. Meanwhile, Fitch has placed DyS ratings on rating watch evolving. The agency believes the acquisition would benefit DyS because of Wal-Mart’s operating expertise and financial profile. Fitch had placed DyS ratings on negative outlook on December 12.
Posted inDaily Brief
Infonavit Caps Tough Year for Mexico RMBS
Mexican lender Infonavit has sold MXP2.16bn in 2030 UDI-denominated RMBS, its final transaction in a challenging year for mortgage-backed issuers. The deal was split into 2 equal tranches which amortize one after the other, pricing at 5.55% and 6.25%, respectively. The transaction was marketed openly but placed entirely with a single Mexican financial institution, Jose de Jesus Gomez, director of Infonavit’s RMBS program, tells LatinFinance, declining to name the buyer. “The most important thing we’ve done this year is show we can adapt our strategy to achieve our objectives,” he says. In November, Infonavit sold a MXP3.65bn private placement when markets were especially tough. Gomez says continued flexibility will be needed in 2009, though it is too soon to tell to what extent the markets could recover. Banamex, Deutsche Bank and HSBC managed this week’s transaction.