Controladora Milano, Mexico’s largest discount clothing retailer, has acquired Melody, the leading women’s retailer in Mexico with an undisclosed financing package of debt and equity provided by Latin American private equity firm Advent International and Milano’s other shareholders. Banamex provided the debt financing. The value of the transaction was not disclosed. Combined, the companies have 2006 pro forma revenue of $382 million and operates more than 375 stores in over 125 cities in Mexico. Advent acquired Milano in May 2006 in the first mid-market private equity transaction in Mexico to use cash-flow-based debt. Over the last 12 months, Advent has funded three add-on acquisitions and made four new investments, including most recently Pronto!, a consumer credit company, and La Mansión, an operator of casual dining restaurants in Mexico. In Brazil, two of its portfolio companies have done IPOs recently: Brazilian bank Paraná Banco and duty-free operator Dufry South America, both of which floated on the Bovespa.
Category: Daily Brief
Moody’s Concentrates on Governance in Loose Credit Climate
Moody’s Investors Service said that it will focus more on governance and management when assessing corporate issuers in Latin America because credit conditions are currently ‘benign’ in the region. Alexander Carpenter, chief credit officer for Latin America at Moody’s says, “Low leverage and high liquidity in the region make capital allocation decisions, and the process behind those decisions, key components of future creditworthiness.” Moody’s notes that there have been no Latin American defaults among rated issuers in the first half of 2007, but the ratings agency expects corporate issuance to accelerate in both local currency and foreign currency markets, with use of proceeds focused on liability management, acquisitions and, in the case of Argentina, refinancing of post-default debt.
New Money into EM despite Volatility
Investment flow data tracked by ING showed no upset last week amid the widening fallout of the US subprime crisis. New investor money into EM debt and crossover high-yield was $143m, or 0.24% of assets under management for the week ended June 27, albeit $30 million lower than the $173m of net new inflows from the week before. Most of the new money went into EM local debt funds. “It remains a healthy sign of investor sentiment given that underlying asset prices dropped $529m, or 0.9% of assets under management, over the period,” according to an ING report. Crossover high-yield investor flows amounted to US$167m, similar to the $161m posted in the previous week.
Pemex Seeks Better Terms On $2.5bn Credit Lines
Mexican oil giant Pemex is looking to improve the terms on two $1.25bn revolving credit facilities. One two-tranche facility, with 3- and 5-year maturities, led by Barclays in July 2005, pays around Libor plus 40bp on the longer tenor, according to bankers away from the deal. The second line, a 3-year facility, was launched in May 2006 via Calyon, and pays 27.5bp over Libor. New terms are expected this week. Barclays, Calyon and BBVA are leading.
Ashmore Bags HSBC Pension Mandate
EM asset manager Ashmore has won a $670m mandate from HSBC Bank’s pension fund to invest in emerging markets, including Latin America. Ashmore’s Multi Strategy Fund invests in four underlying investment themes: dollar debt, local currency and local currency debt, special situations and equity. Ashmore has attracted state and city pension funds in recent years as they seek to boost returns in a low yield environment. Ashmore has been most visible in Latin America on the private equity side, snapping up power utilities across the region. Watson Wyatt advised the HSBC Bank Pension Scheme.
Corporate BRL Issuance Seen Taking Off
Debt capital markets bankers expect issuance of global BRL-denominated bonds by Brazilian companies to take off in the coming several months, starting a new trend in local market financing. Ambev’s planned $500m issuance of 10-year global BRL-denominated bonds will be the first of a number of similar corporate deals, say executives. Petrobras is already mulling a deal, and others have received proposals by investment banks. In the past 18 months, several local and offshore banks have tapped BRL financing, but liquidity for those deals has been thin, and placing the notes has often been a challenge, with many of the bonds going to Asian and European retail accounts. But with the advent of big investment grade issuers on the scene, EM institutional investors are expected to take an active interest in new issues and secondary trading. Credit Suisse and Citi are leading the Ambev offering, which we expect to come in line with, or just above the sovereign.
CVRD signs mining contract for Moatize
The government of Mozambique has awarded Brazilian mining company the 25-year mining contract to exploit the Moatize coal project, located in the northwestern province of Tete. The contract can be extended for additional periods of time, and establishes the tax, international trade and foreign exchange regimes that will rule the CVRD investment in Moatize. The project involves the exploitation of an open pit mine for 35 years, with an estimated average annual production of 11 million metric tons of coal products. Roger Agnelli, CVRD’s CEO, described the Moatize contract as an important step in CVRD’s coal strategy, but stated that CVRD must still reach an agreement on the costs for the projects logistics.
EM Funds Slip
Emerging market debt funds fell 0.41% in the week ended June 28 as international and global income funds gained ground, ticking up 0.50% and 0.38% respectively, according to Lipper. In June, EM fudns lost a total 18.84%, bringing the year to date performance to 2.28%. In the previous week, EM funds posted at 0.58% gain, beating out international and global funds.
Brazil Central Bank Raises Growth Forecasts
Policymakers at Brazil’s Central Bank have raised their growth forecasts, from 4.1% to 4.7% with interest rate cuts having the desired effect, according to the Bank. At the same time, inflation forecasts were cut from 3.8% to 3.5% for this year and from 4.4% to 4.1% for next year. The Central Bank cut the benchmark Selic interest rate earlier this month by 50 basis points to 12%, the 16th consecutive drop in the rate.
Brazilian Shell Company Launches $300m IPO
Invest Tur, a private equity fund focused on Brazil’s tourism real estate market, has launched an IPO scheduled to price in mid-July that will raise between $300m-$400m via Bovespa. The company, headed by Carlos Novis Guimarães, former private-sector coordinator at the IDB, has no assets, and is looking to lure institutional buyers with the management’s credibility and their ability to execute profitable trades in Brazil’s tourism real estate sector. “We already have a $1.2bn pipeline that has been developed over the past three or four years,” Guimarães tells LatinFinance, adding despite the lack of assets, Invest Tur will be listed on the Novo Mercado, Bovespa’s highest corporate governance category. Institutional buyers in the US, Europe, Brazil and Asia will be offered bundles of 30 shares, at $1,000 per share. Credit Suisse, the sole lead, together with the company’s four founding partners, conceived the relatively novel structure for the Brazilian market, says Guimarães, who says the proposal fully aligns managers’ and investors’ interests. This is the second shell acquisition company to go public in Brazil, though it is the first time 100% of the capital is being raised with investors. BrasilAgro raised $276m in a late April IPO, also via Credit Suisse, promising to score agriculture sector deals, though a significant portion of the equity came from the company’s managers.