Regional infrastructure-focused private equity fund Conduit Capital detects significant opportunity in LatAm power generation and pipeline assets amid repricing related to the global crisis. “We are seeing the best value in 15 years,” Conduit chairman and managing partner J. Scott Swensen tells LatinFinance. He refers specifically to LatAm energy infrastructure, but the fund is also considering diversification into other sectors. The investor is steering clear of Paraguay, Venezuela, Ecuador, Argentina, Bolivia and Nicaragua, but he likes assets in the rest of LatAm, where there is stability. According to Swenson, there are strategic buyers – especially non-LatAm companies, including Canadian – interested in acquiring developed energy assets in LatAm. Sellers are mostly firms that have encountered problems with financing, he adds. Despite his outlook for continued M&A flow, Swenson does not expect any multibillion dollar deals in 2009. So far, he says, Conduit’s Latin Power III fund is 57% invested and another 18% is allocated. Total capital raised for that fund was $393m. “We will use up our capital in 2009,” Swenson adds. Future funds that Conduit may set up will likely invest in non-energy infrastructure projects like toll roads, tunnels and airports. Swenson adds that more opportunity will arise as most countries have turned such projects over to the private sector. Conduit last week completed the sale of the Libramiento natural gas compression plant and pipeline in Mexico to Canada’s InterGen for $89.2m. The shop says it will earn about twice what it invested in Libramiento with the sale. In October, Conduit invested more than $50m in a 50% stake in Brazil’s GLEP, a developer of hydropower projects.
Category: Daily Brief
Fitch Trims Argentina Local Rating
Fitch has downgraded Argentina’s long term local currency rating to B minus from B, reflecting the country’s increased risk in meeting fiscal and external financing needs over the next 2 years and the government’s inadequate policy response to the global financial crisis. Economic growth is likely to decelerate sharply in 2009 to 1.6% due to declining terms of trade, external demand and the current administration’s inadequate policy response which has amplified the external shock on the domestic economy through a deterioration of investor and consumer confidence and higher domestic interest rates. “The government’s attempts to continue to provide a strong fiscal stimulus will be constrained by slower revenue growth and non-negligible financing needs,” says Fitch analyst Erich Arispe. Government debt amortizations, estimated at 6.8% and 5.4% of GDP in 2009 and 2010, respectively, are almost triple the median for sovereigns rated B by Fitch.
LatAm Growth Seen Slowing to 1.0%: IIF
The Institute for International Finance forecasts that GDP growth in LatAm will slow to 1.0% next year, down from an estimated 4.5% growth in 2008. Exports are expected to drop 7.0% in 2009 and a deficit of 2.3% of GDP is also expected as the trade surplus disappears and worker remittances fall. “Reduced demand for the region’s key commodity exports, a precipitous increase in global risk aversion, a substantial contraction of private capital inflows, reduced investment and a decline of consumer confidence, are resulting in lower economic growth and weakening external positions in virtually every country,” the IIF says.
Remittances Grow in DomRep and Guatemala
Remittances to DomRep are expected to rise 5.0% in 2008 to almost $3.2bn. Remittances to Guatemala, meanwhile, are expected to increase slightly to $4.28bn in 2008 from $4.13bn in 2007, according to JPMorgan. The trend is expected to slow down in 2009, says the shop. Remittances to DomRep are expected to remain flat in 2009 and Guatemala’s should drop to $4.06bn, as the international financial crisis takes a toll on both countries.
Moody’s Sees Guatemala Deterioration
Moody’s has cut the outlook on Guatemala’s ratings to stable from positive. The affected ratings are the Ba2 foreign currency rating, Ba1 country ceiling for foreign currency bonds and Ba3 country ceilings for foreign currency deposits. The cut reflects a relative worsening of Guatemala’s credit metrics compared to similarly rated countries, as well as the impact of the global crisis, which will make credit improvements more difficult. “Despite recent above-trend growth, Guatemala is growing slower than the median for Ba sovereigns; Guatemala is getting poorer and smaller compared to other Ba countries,” says Moody’s vice president Gabriel Torres. “Ten years ago Guatemala’s per capita GDP was 82% of Ba rated nations. Today that has dropped to 58% because of the lower relative growth,” he adds.
Conduit Exits Mexico Asset
Regional infrastructure private equity specialist Conduit Capital Partners has completed the sale of the Libramiento natural gas compression facility and an associated 65km natural gas pipeline to InterGen. The total value of the transaction, which was originally announced in June, was $89.2m, excluding the assumption of non-recourse debt. Starting in 2005, Conduit worked with minority partners Green Energy and Infrastructura Para Energia to build, own and operate the facility and pipeline, located in Queretaro, Mexico. Since the project’s completion in 2007, it has had a long-term contract in place with Pemex Gas y Petroquimici Basica. Conduit’s financial partner was NordLB. The Libramiento investment was made in 2005 from Conduit’s Latin Power III fund, which closed in July 2006 at $392m. Latin Power III is 57% committed, with another 18% of the fund allocated to projects in development. In December 2007, Conduit sold Jamaica Energy Partners for $92.5m. Conduit is presently still investing from Latin Power III. “We continue to see demand for independent power production facilities and other infrastructure projects in Mexico and our other target countries, and we will continue looking for opportunities throughout Latin America and the Caribbean,” says Marc Frishman, a partner at Conduit.
Usiminas to Buy Steel Pipe Maker
Usiminas has agreed to acquire steel pipe manufacturer Zamprogna for BRL160m. The deal is expected to close in February. As of September 30, Zamprogna’s working capital added up to BRL245m and consolidated debt was BRL405m. Financial advisors and financing terms were not disclosed and company officials did not return calls for comment.
Citi Chops Mexico Equity, Tips LatAm Bounce
Citi is cutting Mexico equity to underweight from neutral and adding to an overweight in Chile, while also projecting dollar-adjusted returns of 41% in LatAm stocks next year. “All of these returns should be expected after a Q1 pullback in regional markets,” says the shop, which expects end-2009 market targets of 55,000 on the Bovespa, the Mexican bolsa at 24,000, Chile’s IPSA at 2,900, Colombian IGBC at 10,500 and Peru’s General ending at 9,500. Citi anticipates an early-2009 new relapse of regional markets towards the lower end of current trading range as the Q4 report card comes in, dented by a very weak global economy and poor corporate releases. “We expect a strong upside breakout of equity markets from April/May on, as investors anticipate the bottoming out of the US and global economies,” says the shop. Its economists expect global GDP to rise by just 0.5% in 2009, including a 1.5% contraction in the US. EM should grow by 3.8% in 2009, accounting for over 100% of global growth, while it expects LatAm to slow to 1.6% expansion in 2009, with Brazil at 2.2% and Mexico declining by 0.2%. Citi is overweight Brazil, neutral in Colombia and underweight Peru and Argentina. “We stay largely defensive in sector terms for the near term. It is too early for the full “recovery trade”,” adds the shop.
Vivo Plans Short Debentures
Brazilian mobile phone company Vivo Participacoes is planning an issue of BRL210m in non-convertible 1-year debentures. The deal will price at 113.55% of DI and mature January 11 2010, according to a company statement.
IDB Lends $500m to Costa Rica
The IDB has approved a $500m loan for Costa Rica. The funds will help the country’s central bank extend lending in dollars to local financial institutions so that they can channel additional credit for working capital and trade financing to exporters and other enterprises within the export chain. The loan is for a 5-year term, with a 3-year grace period, at 400bp over 6-month Libor on an annualized basis.