Brazilian paper and pulp company Aracruz failed to come to an agreement with banks regarding a settlement over some $2.13bn in derivatives losses it incurred by taking speculative bets on the direction of the BRL. A November 30 deadline was extended until Friday, December 12, but Aracruz says in a statement to the CVM posted Friday that an agreement has not yet been reached, and that discussions are still going on. A local report in Valor noted last week that the group of banks Aracruz is in talks with offered a 7-year loan at a rate of some 700bp over Libor, though that apparently wasn’t enough to conclude the talks. Upon finding out about the loss in September, Aracruz fired its CFO Isac Zagury and last month shareholders voted to sue the executive over the loss. The FX loss also led to a halting of VCP’s bid to acquire a 28% stake it didn’t own in Aracruz from the Lorentzen Group. That deal is still pending and may move ahead next year if the company can get past its derivatives woes.
Category: Daily Brief
LatAm, Brazil Equity Flows Stay Positive
Flows into the LatAm and Brazil equity funds tracked by EPFR closed the week ended December 10 on a positive note, according to the service. Brazil equity funds saw inflows of $71.4m, marking the third consecutive week of net inflows for the asset class. Six out of the past seven weeks have seen positive inflows into Brazil funds, which today have total assets of $5.5bn. YTD outflows stand at a relatively small $148.9m. In LatAm equities, the YTD outflows account for a larger portion of total assets under management (AUM). Some $5.49bn in funds have fled the region’s equity funds tracked by EPFR, representing 16.5% of total AUM, which stand at $11.8bn today. In the week ended December 10, the outflows were $53.7m, or 0.5% of AUM. Negative performance of the region’s indices has contributed to a $17.0bn drop in total AUM for LatAm funds. The recent positive flows into Brazil and LatAm may be driven by a withdrawal fatigue – there isn’t much left to pull out – as well as the fairly consistent forecasts from research shops that 2009 may see a substantial bear market rally in EM equities, says EPFR analyst Brad Durham. “Sellside research reports have been delivering fairly consistent forecasts for 2009 that includes some 30%-60% in equity upside next year,” remarks Durham.
EM Debt Funds Jump
EM debt funds rose 2.73% in the week ended December 11, posting the highest jump of all debt funds tracked by Lipper. International income funds are up 1.21% and global income funds are up 0.64% for the week, Lipper data shows. YTD growth for these funds remains negative, however, with EM funds down 21.08%, international income funds down 2.34% and global income funds down 8.40%.
LatAm Equities Turn Positive
LatAm equity funds turned around and this week show the best performance compared to other world equity funds, says Lipper. On the week ended December 11, LatAm funds were up 16.64%. EM equity funds weren’t far behind, increasing 11.33% while global small and mid cap funds increased 4.89%. However, the fund tracker’s data reveals that year-to-date performance still has LatAm funds as the worst performers, down 57.91%. EM funds are down 56.35% year-to-date and global small and mid caps are down 48.37%.
IDB Loans $80m to Uruguay
The IDB has approved a loan of up to $80m to Uruguay so it may improve its sewer service. An initial loan of $43m will be used by the country’s National Water Supply and Sanitation Administration and the IDB could approve additional financing for a total of $80m. The loan is for 25 years with a 4-year grace period and an adjustable interest rate. It will be disbursed over a four-year period. Local counterpart funds for the program total $39.5 million.
Cemex Looks to Wrap up Loan Talks
Mexican cement maker Cemex will this week look to wrap up negotiations with banks to extend its 2009 and 2010 loan maturities by 12-24 months, say people involved in the process. The talks surround close to $10bn in bank debt and covenants, margins and terms and conditions are all being renegotiated. The talks, which have been going on for a good part of a month between the company and five lead banks – BBVA, Citi, HSBC, RBS and Santander – are aimed giving Cemex breathing room to restructure its operations and balance sheet. Tenors on up to 4 syndicated or club facilities are being extended, while terms on 2 more bilateral loans are also being renegotiated. In 2009 alone, Cemex faces $6bn in maturing bank debt, which accounts for 43% of its total outstanding debt, a person close to the talks told LatinFinance in mid-November. Cemex has recently been downgraded by Fitch to BB+.
Petrobras Lands 10-Year Yen Loan
Brazilian state-owned oil giant Petrobras has secured a JPY75bn ($750m) 10-year loan from a club of Japanese banks. The proceeds are being used to finance capital investments at the company’s Henrique Lage refinery in the state of Sao Paulo. The deal was led by Sumitomo Mitsui, Mizuho and Tokyo-Mitsubishi, with a guarantee from NEXI, a Japanese export credit agency. The deal wraps up Petrobras’ capital raising plans for 2008, the company says in a statement.
Chile’s Entel Buys Cientec
Entel, the Chilean telecom, says it is acquiring Cientec for CLP15bn ($23m), or CLP49.2 per share in cash, from private investment funds Millenium and Inversiones Balilia, which held the asset since 2000. Cientec will be added to Entel’s IT division. Entel says that upon completion of the deal, it will be among the top three operational continuance outsourcing companies in Chile, with combined revenues of CLP33bn. Entel officials say they cannot disclose the name of the financial advisor they hired for advice on the deal.
Banco BMG Goes the Way of Midcap Peers
Banco BMG is the third Brazilian midcap bank to be downgraded by Moody’s in as many days. The bank’s rating was lowered to Ba2 from Ba1 and the outlook is stable, according to Moody’s, which last week indicated it would be lowering the ratings of mid-sized banks that face funding problems. Since most banks like BMG and its recently downgraded peers Cruzeiro do Sul and Bonsucesso depend on financial institutions for funding, they are far more exposed to a liquidity crunch than their larger counterparts, which count on retail deposit bases for funding.
Ecuador Defaults on $3.8bn in Sovereign Debt
President Correa of Ecuador says he will not pay a $30.6m coupon on the sovereign’s 2012 bonds that is due today, putting the country in technical default of all of its sovereign debt. The move will allow holders of the 2012 notes to seek an acceleration of full payment of the $510m in bonds, and triggers cross default clauses on its 2015 and 2030 notes, which brings the total amount of sovereign debt in technical default to $3.8bn. The announcement coincided with a 10 point drop in the country’s three classes of sovereign bonds to around 23 cents on the dollar Friday, according to sellside trading desks. In calling for a renegotiation of terms on its sovereign debt, some of which it has declared illegitimate, the Correa government may seek a larger haircut than the 66.3% Argentina achieved in its 2005 renegotiation, says Siobhan Morden, LatAm debt strategist at RBS. “Ecuador officials have said the Argentine level wasn’t enough,” remarks Morden. The analyst says Ecuador’s decision to default is driven by the fact that next year’s oil revenues will likely drop by $3bn, and that national elections will be held. As such, the government is seen diverting money away from debt service to finance its short term political objectives, she notes. Debt service accounts for only 7% of Ecuador’s budget. As such the country would have to achieve a substantial haircut to realize any financial benefit from the default. “The decision to go into default is not due to fiscal pressures, falling instead straight into the category of unwillingness to pay given that external debt service payments are minor (just US$400 million in 2009) and the government is still in a comfortable cash-flow/liquidity position,” notes Goldman Sachs analyst Alberto Ramos.