Capital Gold executive vice president Jeff Pritchard tells LatinFinance that his company is in informal talks with about 10 junior mining exploration companies in Mexico. Although he cannot say for sure if Capital Gold will end up making an offer for any of them, the company is interested in buying exploration outfits whose projects can go to production in 2 years. On the other hand, Pritchard also confirms that Capital Gold has been approached by larger mining companies interested in acquiring it as a bolt-on acquisition to beef up operations in northern Mexico. However, given volatility in the company’s share price, Pritchard would rather wait before selling. Capital Gold has a market cap of about $70m. Shares have slid from a 52-week high of 79 cents to 36 cents November 11.
Category: Daily Brief
Autlan Looks to Buy
Minera Autlan, the Mexican Manganese miner, is on the lookout for acquisition targets, say company executives. While declining to comment specifically on the strategy for non-organic growth, an Autlan official confirms what he said in September following the company’s decision not to sell itself in an auction to global mining companies – that Autlan would rather be a buyer than a seller. “We’re not closed to new M&A opportunities,” says the executive. “Given the strong decrease in the valuations of companies in the mining industry, Autlan is considering some acquisitions,” says Banif-Ixe, in a late October report. “Targets would include not only manganese ferroalloy producers, but also some other ferroalloy assets. Additionally, it is analyzing whether to buy a mining company or a smelter/refining facility,” adds the shop, noting the company is considering raising around MXP3.5bn for big ticket capex. If that were raised in the debt market, it would imply a net debt to Ebitda of 1.0x, says Banif-Ixe. An Autlan executive declines to comment on specifics, saying funds could be raised in either debt or equity markets, but that today’s market is not conducive to new issues.
Deutsche Appoints New LatAm DCM Head
Carlos Mendoza will head up Deutsche Bank’s LatAm DCM desk, LatinFinance has learned. The director in the DCM group joined Deutsche in 1998 but left in late 2005 to join Merrill Lynch. He returned to the German shop roughly 18 months ago and has been doing general coverage since then, including Mexican capital markets. Deutsche is apparently not looking to scale back its regional DCM platform in line with a sharp contraction in volume. It is expected to leverage its established liability management franchise at a time when borrowers are in significant need of such a service.
Corporate Default Spike Predicted
Moody’s predicts that the global speculative-grade issuer-weighted corporate default rate will climb to 4.3% by the end of this year, leaping to 10.4% a year from now. “Speculative-grade corporate default rates are expected to climb sharply throughout 2009 as our baseline forecast now incorporates a deep and protracted US recession. Corporate default rates in this cycle will likely match or exceed the peak levels reached in the previous two US recessions of 1990-91 and 2000-01,” says Moody’s director of corporate default research Kenneth Emery. The default rate edged higher to 2.8% in October, from September’s revised level of 2.7% and 1.1% a year ago. Measured on a dollar volume basis, the default rate remained unchanged at 2.4% from September’s revised level. A year ago, the global dollar-weighted bond default rate stood at 0.7%, says Moody’s. The agency’s speculative-grade corporate distress index – which measures the percentage of rated issuers that have debt trading at distressed levels – rose more than 60% from September’s 29.7% to 48.5% in October, marking the highest level since Moody’s launched the index in 1996. A year ago, the index was 4.6%. There were a total of 10 rated corporate debt defaulters in October, including one from Mexico.
Brazil FX Outflows Accelerate
Brazil’s foreign exchange outflows accelerated in the first week on November, averaging $131m per day compared to $48m per day in the last week of October, according to a central bank weekly report. In the week ended November 7, the total net outflow of trade related and financial investments was $656m, versus an inflow of $1bn in the year-ago period. So far this year, inflows stand at $11.9bn while in 2007, the country had absorbed $77.8bn through the first week of November. The most recent results show a deterioration in the country’s balance of payments surplus, says Goldman. “The trade balance [has worsened] $11.3 billion from a year ago, the current account [has deteriorated] $26.9 billion from a year ago, moving into a $23.3 billion deficit, and, finally, the capital account [has dropped] $22.4 billion from a year ago, to $50.1 billion,” adds the shop.
S&P Puts Unibanco on Upgrade Watch
S&P has affirmed its counterparty credit rating on Banco Itau, with a stable outlook and put its BBB minus long-term counterparty credit rating on Unibanco on Credit Watch with positive implications. “The benefits of the bank’s clear leadership in the Brazilian banking industry after the merger more than compensate Unibanco’s somewhat weaker credit profile than that of Itau,” says S&P analyst Ricardo Brito. “We expect to equalize our rating with that on Itau as soon as the merger is approved by regulators and the migration of current shareholders of Unibanco Holdings S.A. to Itau Unibanco Holdings is concluded,” he adds. The rating could come under negative pressure if the business environment in 2009 is more challenging than S&P expects, with an increase in nonperforming loans (closer to 7% of total loans) and ROAA affected by higher funding and consolidation costs. “We do not expect to see ROAA lower than 2% at this rating level,” says the agency.
More Volatility Related Distress to Come
While the bankruptcy of Brazilian seed company Selecta Sementes appears to be an isolated incident, more derivative and refinancing-related distress is seen coming in Brazil’s agricultural sector, say advisory experts. Beef processors and sugar and ethanol companies are particularly vulnerable, they add. Glauco Abdala, advisory specialist at Brazilian restructuring boutique Galeazzi Associados’ said recently that an abundance of credit to the sector is generating a rollover crisis at a number of agricultural companies. Generally in LatAm, currency volatility has hurt exporters’ hedging mechanisms and more fallout could still be coming, say credit analysts. “To the extent [LatAm continues to see] high volatility and capital markets remain frozen, the risks [of defaults and bankruptcies] will be higher,” says Daniel Kastholm, corporate credit analyst at Fitch. He adds while Fitch believes most of the large derivatives-related losses in the region have been announced, it is still unclear how much counterparty loss remains unreported. In Brazil, Votorantim, Sadia and Aracruz announced close to BRL5bn in losses, while in Mexico Comerci filed for bankruptcy amid derivatives implosion. Durango also filed for creditor protection. Prior to these incidents, LatAm’s most recent defaults occurred in 2003, with Durango, Avianca and Argentina’s CLISA, according to Fitch.
Cosan Brings Short Bonds
Brazil’s Cosan has launched a BRL1.1bn promissory note issue. The 1-year paper will pay interest at the DI rate plus 3%. The sugar and ethanol producer plans to use proceeds to help pay for the acquisition of Esso fuel distribution and service station assets it bought in April from ExxonMobil for $1bn. Bradesco is managing the sale.
Sabesp Closes Debentures
Brazil’s Sabesp has completed a BRL220m issue of non-convertible debentures. A BRL100m 2013 tranche paying the DI rate plus % was acquired by 13 investors. The second BRL220m 2015 tranche pays 12.87%, and was bought by 12 accounts. Pension funds, investment funds and brokers were among the buyers. Proceeds from the sale will pay down some BRL300m in maturities approaching in March. HSBC led the deal rated A+ on a national scale, with Citi, Caixa Economica Federal and Banco do Brasil as co-managers.
IDB, Banobras Lend to Mexico Infrastructure
The IDB has approved a loan of $350m for Mexican infrastructure and public services projects, the first from a $1.2bn line of credit. Funds will be disbursed through development bank Banobras to Mexican state and municipal governments and public service providers to finance priority investments in infrastructure, public services and strengthening institutions. The $350m loan is for 20 years, with a 5-year grace period and an undisclosed Libor-based interest rate. Banobras will use the IDB funding to supply medium and long-term loans and credit guarantees, as well as technical assistance. In order to finance small-scale projects such as potable water systems, street lighting or road paving in rural municipalities, Banobras will also be able to rediscount its own portfolio using funds from the IDB loan.