Despite its high exposure to falling commodity that has contributed to its first trade deficit since 2003, Peru’s economy is well grounded and its growth may lead the region in 2009, says JPMorgan. The shop sees GDP expansion ending the year at 5.3%, its highest country forecast within LatAm. With reserves of $34bn representing a quarter of total GDP and an expected fiscal surplus of $1.1bn, Peru’s finance ministry may succeed in sticking to its 6% GDP target for next year. A new trade agreement with China and expected FDI of $5bn should bolster that bid, says JPM. The shop recommends overweight positions in two Peruvian companies: Credicorp, the financial conglomerate that owns BCP, and Buenaventura, the mining company. With Credicorp, investors get exposure to domestic growth, while a recent drop in gold may produce a buying opportunity for companies like Buenaventura that are exposed to the precious metal as the holidays begin.
Category: Daily Brief
Merrill Cuts Ecuador Exposure to Zero
Merrill Lynch has cut its Ecuador exposure to zero in its model external debt portfolio. The shop says it believes bond prices have further downside in an eventual default or restructuring scenario. It also cut Uruguay to underweight from market weight, as it sees the credit as expensive and says deteriorating fundamentals in Argentina will weigh. Jamaica was also downgraded to underweight from market weight as the country is expected to be severely affected by slowdown in the US economy. Merrill says keeps its market weight recommendations for Argentina and Mexico and its overweight recommendation on Peru, but cuts excess exposure versus recommended allocation in the three countries.
Comerci Sells Stake in Prestacomer
Mexican retailer La Comerci has sold its 50% stake in local credit card company Prestacomer to BNP Paribas Personal Finance, with which it already has a partnership, for MXP120m. The sale comes shortly after Comerci announced it would sell assets to pay off debt. The company defaulted after recording losses on forex derivatives. Credit Suisse has been advising the retailer.
Perdigao Plans Reorganization
Brazil’s Perdigao is planning more corporate restructuring, including a partial split-off of Perdigao Agroindustrial and the transfer to Perdigao of the unit. This consists of its investments in subsidiaries Perdigao Agroindustrial Mato Grosso, Batavia Industria de Alimentos and Maroca & Russo Industria e Comercio (Cotoches), as well as certain liabilities in the form of debt obligations, accounts payable and intercompany loans. Perdigao will incorporate the wholly owned subsidiaries and the restructuring will be submitted for approval of general shareholders. Goodwill to be registered as part of the acquisition of the incorporated companies, in the amount of BRL149m, based on forecasts of future years’ earnings and will be amortized in its entirety in fiscal year 2008. The food company also states that it got BRL284m from BNDES last week for a number of already completed capacity expansion investment projects.
HSBC Asset Manager Joins BTG
BTG, the Brazil boutique set up by ex-UBS fixed income head Andre Esteves, has hired Christian Deseglise as partner in charge of business development. He will be responsible for product development, investor relations and marketing activities, based in New York. Deseglise joins from HSBC Global Asset Management, where he was global head of EM.
Morgan Stanley Trims FI Bankers
Morgan Stanley is heard to have cut two senior financial institutions-focused bankers in the region. The layoffs are understood to be part of a global headcount reduction at the shop, announced two weeks ago. Maurice Marchesini, head of LatAm FIs based in Los Angeles, has left the firm, say people away from the shop. The senior level MD was head of LatAm for Merrill Lynch prior to his move to Morgan Stanley two years ago. Also asked to leave is Iraja Guimaraes, a director in charge of Brazil FIs. Guimaraes, who is based in Sao Paulo, also worked at Merrill prior to his move to Morgan. “The firm is resizing its cost base and headcount to match current opportunities in the marketplace, while reallocating resources to those businesses that provide an attractive risk adjusted return on capital,” says a Morgan Stanley spokeswoman.
Peru Public Credit Director Resigns
Peru’s director of public credit, Pablo Secada, has resigned, according to Peru’s official gazette. The finance ministry did not give a reason for the departure or an indication of his replacement when contacted by LatinFinance. Secada was appointed to the post mid-August, replacing Jose Miguel Ugarte at the same time that Luis Valdivieso replaced Jose Luis Carranza as finance minister.
Regional Fund Outflows Continue
Outflows from EM equity funds slowed in late November as risk aversion dropped in the face of continued interest rate cuts, new stimulus measures and the impending arrival of a new US administration, says EPFR Global. However, LatAm equity funds still lost $70m, while outflows from BRICS and Brazil focused funds leveled off. EM bond funds extended their losing streak to 15 straight weeks, adds the fund tracker.
Telefonica Now Brazil’s Likeliest Consolidator
Spain’s Telefonica is the best-prepared and likeliest buyer of telecom assets in Brazil in the medium term, according to analysts at JPMorgan. Speaking on a call last week, analysts note that among the three European telecoms operating in the country – Telecom Italia (TI), Portugal Telecom (PT), and Telefonica – the Spanish operator has the strongest balance sheet position to support acquisitions. TI and PT are both under pressure back at home, and may be tempted to sell their holdings if their liquidity issues persist, say analysts Jonathan Dann, who covers European Telecoms, and Andre Baggio, who covers Brazilian carriers. “More than 100% of the cash [PT and TI] produce will go towards refinancing [debt,]” says Dann, adding both are at the mercy of the bond market. TI has a mobile unit in Brazil called TIM Brasil, while PT shares ownership of mobile operator Vivo with Telefonica. Telefonica, which owns 80% of Telesp’s shares, may also consider using the stock to acquire TIM or the portion in Vivo it doesn’t already own. But neither TI nor PT appear willing to part with the assets quite yet, say the analysts. An analyst at a Brazilian shop who declined to be named agrees Telefonica is well positioned, and notes America Movil is the region’s other well-capitalized and deal-hungry player. But he doesn’t see either aggressively chasing deals in the coming several months. “They’ll likely let their competitors weaken even more before trying to acquire them. Now is not the time to buy,” he concludes. With regards to non-mobile assets, both America Movil face regulatory impediments when it comes to acquiring cable assets in Brazil, thanks to laws that prevent foreign ownership of assets. Telemar, which is in the process of acquiring Brasil Telecom for some BRL16bn, makes up LatAm’s third major player, notes the analyst.
Unibanco Buys AIG Out of Insurance JV
Unibanco has agreed to acquire AIG’s 48% ownership of a local insurance joint venture in a deal valued at BRL820m by Dealogic, excluding debt. The transaction involves crossholdings in Unibanco AIG Seguros (UASEG) and AIG Brasil Companhia de Seguros (AIG Brasil). Under the terms of the agreement, Unibanco will purchase the shareholding in UASEG held by certain of AIG’s subsidiaries, and an AIG subsidiary will purchase Unibanco’s shares in AIG Brasil. UASEG’s name will be changed to Unibanco Seguros (Uniseg). “During the 11-year partnership, UASEG has increased its market share from 1% to 8%,” the pair say in a statement. “The company introduced products such as extended warranty environmental liability and directors and officers liability into the Brazilian market and it became a leading company in corporate insurance and is among the top four companies in the overall Brazilian market,” they add. Following completion of the agreement, Unibanco will assume full control of Uniseg and continue to grow its insurance and pension businesses. AIG will still bring insurance products and services to the Brazilian market through AIG Brasil, while continuing to work with Uniseg in many business opportunities, namely in reinsurance and corporate insurance. “The change allows both shareholders to pursue individual objectives while continuing to explore opportunities together,” says Uniseg CEO Jose Rudge. The deal is expected to close in January. Unibanco AIG Seguros is Brazil’s fourth-largest insurance company with total assets of BRL12bn, according to Dow Jones. Unibanco is in the process of merging with Itau.