Banco Mercantil Santa Cruz (BMSC), Bolivia’s biggest bank, says it is up to the challenge of deteriorating global markets conditions, and remains optimistic about short-term prospects. “We are fairly prepared,” Alberto Valdes Andreatta, vice president of finance and international affairs at BMSC tells LatinFinance. “You’re going to see some defaults coming in the second semester of 2009 . . . but most of the banks are 100% provisioned for non-performing loans. I don’t think it’s going to be that bad,” says Valdes. He adds that most Bolivian banks have a fairly strong base, with capital adequacy ratios of around 12%-13%. Valdes is cautious about the 2009-2010 outlook, given the pass through from the global environment. “What happens in Bolivia is that you get the effects 6-12 months later than the international markets,” says the banker. “We haven’t put a stop on the growth in our investment, we’re going to be aggressive in 2009 as well,” says Darko Zuazo Batchelder, BMSC’s vice president. The focus is more on mortgages and SME lending than consumer loans, where BMSC sees risk building. “2009 will be the same or better than 2008, all things being equal as we see them now. In 2010 we’ll see a little bit of a slowdown,” adds Zuazo. He adds that the macro outlook is relatively calm internally, and that big projects like Mutun will not be impacted. “There’s too much money involved,” says Zuazo of the $2.1bn project.
Category: Daily Brief
Kirchner Targets Foreign Funds
Argentina president Cristina Kirchner has announced a number of measures she hopes will improve the country’s ailing economy. Among ideas being included in a bill to be sent to congress today is the repatriation of funds held abroad, which an Argentine economist – who asked not to be identified – says amount to around $150bn. Kirchner has said that funds declared but not brought back to Argentina will pay an 8% tax. Funds that are declared and brought back will pay a 6% tax and funds that are brought back and invested in local debt will pay a 3% tax. “It’s very strange, it’s a puzzling proposition,” says a Wall Street analyst covering the credit. Also, infrastructure, real estate, agricultural or industrial investments made with repatriated funds will be taxed 1%. Other measures announced include payroll tax reductions for businesses employing 10 people or fewer, and the creation of a ministry of production, which according to media reports will be headed by Debora Giorgi, who leads ministry of production of Buenos Aires province. “The measures announced by the president are likely to be largely ineffective to attract any significant amounts of investment or mitigate the effects of the global financial crisis on the local economy,” says Goldman Sachs. It adds that local and foreign investors remain concerned about macro stability, respect for property rights and the rule of law. “Instead of providing tax incentives, we believe the government should focus on strengthening all the latter to successfully attract meaningful amounts of investment by either local or foreign investors into the country,” says the shop.
Chavez Expected to Devalue Bolivar
After having lost a few key regions in the recent sub-national level, and facing the effects of low oil prices on government revenue, Chavez is expected to focus on managing Venezuela’s economy. Alejandro Grisanti, LatAm research director at Barclays believes he will be forced to devalue the bolivar at the beginning of 2009 to balance the country’s fiscal accounts. HSBC estimates that the Bolivar is some 40% overvalued and expects a managed devaluation to a level close to VEB3.00 from a current VEB2.15/USD.
JPMorgan Positive on CentAm
The economies of Costa Rica, Guatemala and Panama are keeping the effects of the global slowdown at bay, JPMorgan believes. Costa Rica’s year-to-date surplus stands at 0.8% of estimated GDP and although the Arias administration is warning that by the end of the year there will be a budget deficit equal to 0.5% of GDP, JPMorgan says risks are skewed toward fiscal outperformance. Guatemala’s accumulation of international reserves, which total $4.7bn or 10% of GDP, combined with its low external public debt, equal to 9.1% of estimated GDP, render the country well suited to face the effects of the global financial crisis. Panama’s growth, meanwhile, is expected to be supported by public works on the Canal and other infrastructure projects, keeping GDP growth at 8.5% in 2008 compared to 11.5% in 2007.
Ecuador Bottler Caps Sale to Group
Coca Cola del Ecuador, a local bottler formerly known as Ecuador Bottling Company (EBC), has sold itself to a local investor group, ending months of wrangling between its shareholders and outside suitors, say people familiar with the deal. The Correa Group – already a majority shareholder in the company with around 51% of the shares – is understood to have acquired a 34.5% stake in EBC for over $64m, leaving it with a combined stake of close to 85%. The private group is heard to have used its own cash to pay for the stake, which belonged to another shareholder in EBC called Nobis Group. Nobis originally sought a sale to Chile’s Kopolar. However, Correa Group had right of first refusal and reportedly considered legal action to bolster its claim to the stake. Earlier this year, Kopolar withdrew its bid for EBC in a filing. Ecuador’s Analytica Securities advised the sellers on the deal.
BRMalls to Repurchase Perps
BRMalls has launched an offer to repurchase up to $30m of its 9.75% dollar-denominated perpetual bonds held outside of Brazil. The Brazilian shopping mall developer will hold a modified Dutch auction process where holders submit their minimum buyback considerations. BRMalls will pay $500-$600 per $1,000 tendered, it says, deriving the price through auction. It is also offering an early acceptance premium of $25 per $1,000 for offers before December 10. The transaction, managed by Citi, expires December 23. The bonds have been very illiquid, according to traders, with a price of 60 heard at one shop, in line with other LatAm perps. A banker on the transaction says the price range is designed to offer a premium to where the bonds have traded recently. BRMalls has $175m outstanding in the BB minus rated bonds, issued in November 2007 through Citi and UBS.
Localiza Plots Another Share Buyback
Brazilian car-rental agency Localiza has announced a 1-year share buyback program of up to 5.86m, or 5.8%, of its outstanding shares, it says. It has also concluded early its previous 1-year program, which had been set to expire December 17, in which it bought back 4.22m out of a possible 4.50m units. Localiza shares closed Tuesday at BRL5.61.
Xstrata Eyes $2.5bn Chile Mine Investment
Xstrata says the El Morro copper project in Chile may require a $2.5bn investment to take it to production. It also says the mine will have a life of 14 years plus 2-3 years for the construction phase and 5 years for the period of mine closure. Xstrata says El Morro has estimated mineral reserves of 450m tons with an ore grade of 0.58% copper. Xstrata Copper has a 70% stake in Minera El Morro, which owns the project. Vancouver-based New Gold owns the remaining 30%. The mine is still in the permitting phase.
LatAm Leads Wilting EM Debt Trade
Trading in LatAm debt fell in Q3, according to an EMTA survey, but it still accounted for 39% of the EM total, the largest share for any region. “Trading in emerging markets debt instruments fell to its lowest levels in five and a half years during the third quarter of 2008,” says EMTA. LatAm’s total of $367.0bn traded in the quarter marks a drop of 24% from 2Q and 58% from 3Q2007. The region’s volume is also the lowest since the $351bn registered in Q1 1999, EMTA says. Brazil’s level of $203.8bn represents a fall of 16% from 2Q, but it remains the most traded debt in EM, with its 2040 Eurobond still the single most traded instrument at $17.2bn in flow. Argentina registered the fourth-highest EM volume in the quarter with $72.4bn. EM trading overall also fell, to $946bn in Q3, its lowest level since 2003, representing a 43% drop from a year ago, and 22% from Q2. Turnover in local markets instruments stood at $643.3bn, falling 46% from Q3 2007 and 22% from Q2. The $141.0bn traded in Brazil local instruments also led EM. EMTA’s survey includes data from 54 firms active in EM trading and investment.
IDB Tightens Corporate Screws
Private sector companies and projects hoping to tap into IDB funds are more likely to be told no in the coming year as demand for the multilateral’s balance sheet soars. Faced with a substantial rise in requests from sovereigns, the IDB will be even more selective in evaluating projects, favoring those that meet stringent development criteria, says an official at the lender. Governments will likely have priority access, reducing the pool available to corporates. However, people at the institution note that the total budget will increase some 20% in 2009. “It’s going to be a complicated, ongoing allocation process in the coming year,” notes an IDB executive, who adds that there is no blanket rule or country limit to determine allocation. Among the IDB’s biggest clients in the region are Colombia, Peru, Brazil, Chile and Panama. IDB president Luis Alberto Moreno said this week that the multilateral will likely lend some $12bn in the coming year, with an additional $6bn coming from an emergency lending facility destined for sovereigns only. That is up from the $9bn-$10bn expected in 2008. The IDB’s private sector division, whose deals can account for no more than 10% of the IDB’s total loan exposure at any given point, approved $2.2bn in loans in 2007. The figure for 2008 is likely to have risen, say bank officials, who decline to specify volume. The IDB has played a major role in providing funds for projects and companies across the region. As needs rise and capital markets remain shut, a reduction in multilateral funds creates added woes for the private sector. Other multilaterals are expected to follow suit with a pullback from corporates, say bankers.