Subsidiaries of state-controlled Eletrobras won 5 of the 7 packages of transmission lines to connect the Rio Madeira hydroelectric projects to the national electricity grid in a BRL724.6m auction last Wednesday. The results suggest that the government will ramp up investment in the sector and act as a guarantor for private investment to avert a slowdown as demand for power is poised to drop in 2009, says a Brazil infrastructure industry executive. State-controlled Energy Research recently cut its 2009 growth estimate for domestic consumption to 4.8% from 5.2%. The Norte Brasil consortium, led by state companies Eletronorte and Eletrosul, and Andrade Gutierrez, bid a total BRL363.4m to operate 3 of the transmission line projects. Madeira Transmissao, led by Cteep and state-owned Furnas, will pay BRL328.3m for 2 packages, while Cymi Holding won the remaining 2 for BRL50.9m. The auction, which Aneel director Jerson Kelman calls a success, was delayed repeatedly in recent weeks as the global credit crisis limited funding options for bidders. Private interest in the auction ensured its success, according to Kelman, who plays down the fact that some Eletrobras subsidiaries were part of the winning consortia. Projects were awarded at an average 7.1% discount to the government’s maximum price – among the lowest since electricity projects were offered through auctions. The 2,375km of transmission lines will link the Jirau and Santo Antonio dams in the Amazon to the city of Araraquara in southeast Brazil. The required investment to put the lines in operation nears BRL7bn, and consortia will be eligible for BNDES funding.
Category: Daily Brief
Brazilian Beef Producer to Get BNDES Equity
Independencia has agreed to receive a capital increase of up to BRL450m from the equity investment arm of development bank BNDES. The Brazilian meatpacker did not specify the size of the minority stake that BNDESPar would hold up on completion, adding that further details will be available at a later date. Independencia plans to use the funds to strengthen its capital structure and for future growth. BNDES this year has raised its stake in fellow beef producer JBS to 31%. Independencia sold $300m in 2015 9.875% bonds in May via Santander, which are now trading around 40.
Petrobras Gets Liquidity Injection
Brazilian state-run energy giant Petrobras has received a BRL2bn loan to ease cash-flow troubles, local newspapers reported last week. According to O Estado de Sao Paulo, Petrobras got a BRL2.0bn loan from state-run Caixa Economica to cover short-term cash flow problems, local press reports said. Funds were apparently needed because tax payments at the end of October caused a temporary cash crisis, local press says.
Panama’s BG Rumored Plotting Local Perp
Panama’s BG Financial Group is planning to sell $250m in perpetual bonds to finance growth plans, according to a Dow Jones report, which cites a filing with the Panamanian Stock Exchange. The group’s banking subsidiary Banco General will issue the bonds on the local exchange this week, the report states. Proceeds will be used to fund the bank’s commercial, mortgage and consumer lending businesses in Panama and abroad, it adds.
IDB Offers Mexico Housing Boost
The IDB has agreed provide $2.8bn in financing through three facilities to boost liquidity in the Mexican mortgage and housing sector, it says. It will provide a 10-year $2.5bn sovereign-guaranteed credit line to Sociedad Hipoteca Federal, the first disbursement of which will be a $500m 25-year loan paying a spread over Libor. In a separate, part of the package, the IDB will offer up to $150m equivalent in pesos to eligible Mexican mortgage lenders, following a similar $150m facility brought by the IFC in October. Through the facility, the IDB can provide mezzanine credit support via partial credit guarantees or purchases of mezzanine notes by way of a loan to a trust. It is also able to finance the purchase of up to 15% in RMBS though a loan to a trust, and provide an unsecured loan to a fund providing supporting lenders. Finally, the IDB will make available a $185m loan facility to state-backed lender Infonavit, to support mezzanine portions of its RMBS issuance. Both the $150m and $180m non-sovereign guaranteed loan facilities are available for 3 years, renewable for another 3.
Cash-Rich Investors Wait to Pounce
When the dust settles from the global crisis and stability returns, investors say there will be attractive buying opportunities in LatAm for those with liquidity. “I would expect investor attention to return to emerging markets generally before too long,” says Allan Conway, head of EM equity at Schroders. “They have been inappropriately oversold. If you are prepared to take an 18-24 month view, prices will look very cheap over that timeframe,” adds the investor, whose fund has $12bn under management in EM. Richard Madigan, chief investment strategist and portfolio manager at JPMorgan Asset Management, finds valuations seen from September through November are technically driven rather than fundamental. “We’ve gone back to valuations of 5-10 years ago in certain markets, where I’d argue those markets are radically different in what we see in structural and policy reform,” he adds. Corporates are also likely to see buyers. “If you are in a situation where you can spend money, you can get the best companies anywhere on the yield curve you want at a very compelling price for the investor,” says Mike Gagliardi, portfolio manager at HSBC Halbis, which manages $4bn in EM. “Why go with a second or third-tier credit that yields 30%, when you can get a top-tier that yields 25%?” In the region’s past crises, Galgiardi finds LatAm lacked the policy discipline it now has. It may also present a better opportunity than other EM regions such as Eastern Europe, as its corporate names are more established. (For the complete buyside outlook, see the December issue of LatinFinance at www.latinfinance.com.)
Credit Draw Cramps AMX Liquidity
America Movil’s full draw on $2bn in bank credit facilities in Q3 and decision to use cash to repurchase MXP17.4bn in shares have weekend its liquidity position, says Moody’s, which cut the outlook on its A3 rating to stable from positive. The move will make it more challenging for the Mexican mobile phone operator to cover its MXP20bn commercial paper programs, of which it now has MXP6.5bn outstanding. Moody’s also revised expectations regarding America Movil’s “ability to increase margins and improve credit metrics in 2009, due to the likely impact of a more adverse economic environment on its pre-paid subscriber base,” it says.
Moody’s Detects AmBev Strains
Moody’s has cut its outlook for AmBev to stable from positive, reflecting increased pressure on margins, increased dividend payments and lower free cash flow, and an environment of restricted or more expensive financing. AmBev’s cash flow from operations minus capex amounts to BRL4.5bn on an last-12-months basis, which, when combined with cash and cash equivalents of BRL2bn, would be sufficient to cover AmBev’s current portion of long term debt of BRL2.43bn and could also cover other short term debt maturities of BRL1.61bn, which are composed of revolving credit lines that are normally renewed. However, AmBev has historically maintained a high level of payout to investors, which amounted to BRL4.6bn – including share buybacks and dividends – for the 12 months ending September 30, Moody’s says. The agency also affirms the Baa3 foreign currency issuer rating.
Fitch Sees High JBS Leverage
Fitch has assigned a B+ to Brazilian beef producer JBS, it says. The agency based its ratings on JBS’ strong competitive position and high liquidity, but also cyclical risks, high leverage and aggressive growth strategy. Fitch expects the credit ratings to strengthen as it begins to consolidate the acquisitions of Tasman and Smithfield beef made earlier this year. The outlook is stable. Moody’s rates JBS an equivalent B1, and Standard & Poor’s B+.
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