Several companies have recently shown interest in acquiring Brazilian sugarcane grower and ethanol producer Nova America, according to two sugar industry experts who asked not to be identified. One of the companies rumored to be interested in Nova America, a subsidiary of Sao Paulo-based holdco Rezende Barbosa, is ETH Bioenergia, a subsidiary of Odebrecht Group. ETH executives did not return calls seeking comment, though the company has said publicly that it is looking at acquisition opportunities. Other potential bidders for Nova America, which reported total assets of BRL1.7bn in its most recent quarter, could include large non-Brazilian oil and biofuel companies, says one Brazil-based executive who in the sector. The ethanol and biofuels industry has seen substantial consolidation this year. This month, Monsanto completed its purchase of sugarcane biotech company Aly Participacoes, the parent of CanaVialis and Alellyx, for $287m. More acquisition opportunities exist in Brazil, especially as smaller companies continue face difficulties in obtaining financing, say the executives.
Category: Daily Brief
Citi’s Boord Returns to Region
Veteran investment banker John Boord is returning to Citi’s LatAm unit where he will co-head regional investment banking starting January, Manuel Medina-Mora, chairman and CEO Citigroup Latin America and Mexico tells LatinFinance. The Venezuelan national will run LatAm investment banking ex-Brazil and be based in Mexico. Boord, a former head of Mexican and regional investment banking at the firm, replaces Carlos Vara who left Citi in early December. Boord is currently in Citi’s New York-based US consumer and retail investment banking group. He wanted to return to the region, Medina Mora adds. The investment banking business that Vara helped run covers advisory, M&A and equity. Ricardo Lacerda, Vara’s former co-head based in Sao Paulo, will continue to lead Citi’s Brazil investment banking efforts. Separately, former LatAm DCM co-head John Hartzell left the firm in a pre-Thanksgiving round of redundancies. Hartzell departed the DCM group in early 2007 to head LatAm trading and was latterly involved in finding derivatives solutions for corporate clients.
Citi Rules Out More LatAm Cuts
Citi does not plan to exit any LatAm banking businesses and has completed is headcount reduction, according to the bank’s regional head. “The Latin America network has been performing very well, it’s a very solid network and we consider it to be key to our future success,” Manuel Medina-Mora, chairman and CEO Citigroup Latin America and Mexico tells LatinFinance. “Those are key parts of our strategy,” adds the banker, referring to Citi’s LatAm units and the aim of being a global universal bank with global access and capabilities. According to Medina-Mora, LatAm will produce 20%-25% of global Citi revenue this year, up from around 15%-16% in a typical 12 months, using just 6%-7% of total assets. Asia produces similar net income, the banker adds. Since Citi ran into significant subprime problems that led to its bailout by the US government, there has been persistent speculation about a sale of Citi’s operations in Brazil, Central America and Mexico. But the bank’s regional head, who oversaw the integration of Banamex into the global institution, rejects this. Medina-Mora adds that no further staff reductions are likely. “We’ve been doing that throughout this year, but we are basically done,” says Medina-Mora. “What I would anticipate is just some small divestments of business that are not necessarily linked to banking,” he adds. Medina-Mora refers to the sale of a small pension fund firm in Uruguay and a similar divestment in Peru. “Those are the types of things that you will see but the reduction of headcount in the region was a natural one, a significant part already happened with the integration of three units in Central America,” says Medina-Mora.
Cemig Gets Investment Grade
Moody’s has upgraded the local currency rating for Cemig and its subsidiaries to Baa3 from Ba2 with a stable outlook. The ratings, says Moody’s, reflect the company’s healthy profitability and strong cash generation, its integrated position as one of the largest utilities in both the distribution and generation businesses in Brazil, and very strong creditworthiness relative to peers. The upgrade comes in tandem with Moody’s upgrade to category 3 from 4 of the level of supportiveness of Brazil’s regulatory environment for regulated electric utilities.
S&P Down on Venezuela
S&P has chopped its outlook for Venezuela to negative from stable. The agency believes the country’s oil exports will see an average price of $40 per barrel in 2009. This drop in oil prices will cause the current account to move into a deficit of 4.3% of GDP next year says S&P. It will also cause a deterioration in the government’s international reserves, which have already fallen by almost $2bn. On October 30, reserves added up to about $40.5bn. Government spending is unlikely to be curtailed despite these factors, especially as president Chavez campaigns to win a referendum that will allow him to run for the presidency indefinitely. “We expect that as the government continues to work under a political campaign mode, at least until March 2009, it will be less likely to tighten fiscal and monetary policy to tackle the negative impact of lower oil prices on a timely basis,” says S&P analyst Roberto Sifon Arevalo. The weak price of oil may also force Chavez to rethink his announced nationalization plans, says Barclays senior economist Alejandro Grisanti.
Cruzeiro do Sul Tees off Brazil Bank Downgrades
While the worst of the liquidity crunch apparently behind Brazil’s mid-sized banks, the outlook for 2009 is grim and little if any growth is expected for the sector, according to Moody’s. The agency has downgraded Banco Cruzeiro do Sul to Ba2 Wednesday and maintained a negative outlook on the institution. “We have a negative outlook on the sector for 2009 and don’t discard the possibility of more downgrades,” Ceres Lisboa, an analyst at Moody’s in Sao Paulo, tells LatinFinance. Another bank likely to see its rating lowered by year-end is Banco Bonsucesso. For both Cruzeiro do Sul and Bonsucesso, funding remains a chief concern. The former has some $227m in debt maturing in 2009, says Lisboa. Overall, most institutions in the mid-size space are seen shrinking their operations as they prioritize liquidity and cash positions over portfolio expansion, she notes. That means banks will consider selling portfolios or even their entire operations to avoid insolvency, according to Moody’s.
Itau Steps up Payroll Loan Push
Brazil’s Banco Itau, which in the past months has acquired a number of payroll deduction loan portfolios in Brazil, appears to be eager to push further into the banking subsector. A senior Itau official has told local Brazilian press that the bank is eager to increase its activity in the space in the wake of several portfolio acquisitions in October. That could include outright acquisitions, say analysts covering the sector. Moody’s’ Ceres Lisboa notes there are several well run banks facing funding difficulties which would make for attractive targets. Considered to be the most secure form of consumer loans, payroll deductions were largely pioneered by mid sized banks and have taken off in Brazil in the past three years. Large banks like Bradesco and SocGen have in the past two years bought payroll loan specialists like BMC and Cacique, respectively.
BRL Seen Rising in 2009
Lower commodity prices, lower inflation and lower interest rates in 2009 will help EM economies recover somewhat by the end of next year. The BRL, which on December 9 traded at BRL2.45, is expected to strengthen to BRL1.90-BRL2.00 per dollar by the end of 2009, according to Merrill Lynch equity analyst Michael Hartnett. He believes that once interest rates fall, the BRL will begin recovering. Barclays Capital also sees inflation risks fading in Brazil, where recession risks will open the door for interest rate cuts.
Genomma Stashes M&A Funds
Mexican pharmaceutical company Genomma Lab says it has set aside up to MXP1.07bn in cash for potential acquisitions of medicine brands. The funds were raised during its MXP2.4bn June IPO on Mexico’s Bolsa. The company wants to expand its participation in the personal hygiene and OTC medicines in Mexico. It also expects to see revenues grow up to 22% in 2009, excluding potential acquisitions.
Bimbo Clinches Weston Assets in $2.4bn Deal
As first reported by LatinFinance on December 4, Bimbo, LatAm’s largest confectionary and baked goods company, has agreed to pay $2.38bn to buy the US fresh bread assets of Canada’s Weston Foods it didn’t already distribute. The deal includes the US brands Arnold’s, Boboli, Brownberry, Entenmann’s, Freihofer’s, Stroehmann and Thomas’. Bimbo first acquired the company’s western US distribution assets in 2002. It has since sought to increase its stake of the US bread market, and this deal, which also gives it 4,000 distribution routes and 22 factories in the US, propels Bimbo into a new class of LatAm multinationals with large exposure to multiple geographies. “This is the largest deal in the history of Grupo Bimbo and one of the largest in the bread industry,” says Bimbo CEO Daniel Servitje in a release issued Wednesday morning. Bimbo hired New York boutique Atlas Strategic Advisors for M&A advice. Legal advice came from Cleary Gottlieb, Ritch Mueller and White & Case. Bimbo shares traded down 3.4% on the news.