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.)
Category: Daily Brief
Bolivia’s BMSC Ready for Challenge
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.
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.
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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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.