Banco Safra is looking to return to the BRL Global market for a second time in just over a month amid talk that the recent imposition of an IOF tax on derivatives may encourage investors to further migrate to the offshore curve and help spur more issuance of this type. This deal is coming directly from the Brazilian bank as opposed to Europe-based issuer that tapped the market in June with a BRL400m Reg S only 10% 2015 (BBB minus) that was priced at 99.627 to yield 10.125% via BAML and Safra, according to bankers. Banco Safra SA, rated Baa2 and BBB minus by Moody’s and Fitch, is splitting into two teams to market the 144A/RegS Global BRL trade amid expectations of a 5-year tenor. Today the borrower will be in London and Chile, where pension funds have shown interest in such bonds, and it will wrap roadshows on Tuesday in Los Angeles and New York. This comes after much talk that several Brazilian issuers are looking to replicate the success of McDonald’s franchise Arcos Dorados’ BRL400m 5-year global (Ba2/BBB minus) bond earlier this year. Brazilian banks such as Bradesco, Banco do Brasil and BNDES are all heard contemplating such structures as well as other corporates such as steelmaker Usiminas and perhaps utility Cemig, which recently completed non-deal roadshows with Deutsche Bank. Being a utility with revenues in BRL tied to inflation, Cemig is thought to be an ideal candidate for an inflation-linked BRL bond, much like Banco Votorantim did earlier this year. Yet despite bankers’ effort to pitch inflation-linkers, it is questionable whether this structure will truly take off this year. Still with both the euro and the USD under pressure, bankers think that investors are more willing to take on the currency risk embedded in plain vanilla Global BRL trades, though the Brazilian government’s efforts to contain the strength of the BRL could counterbalance this trend however briefly. More likely, however, the authorities’ attempts to control the upward trajectory of
Category: Bonds
AES Gener Prints New 2021
Chilean utility AES Gener priced a new 2021 Thursday as part of a debt exchange and tender for its outstanding 2014s. In all its sold $400m of the 10-year notes at 99.037 with a 5.25% coupon to yield 5.375% or 242bp over UST, coming at the tight end of 5.375%-5.50% guidance. Close to $300m of that took the form of new money, while the remainder is to be used in the exchange. As of July 27, the company had received tenders to purchase $151.07m of 7.50% 2014s or 37.77% of the outstanding senior notes, while also receiving offers to exchange $100.20m of the notes for the new 2021. At the same in a separate local transaction, the company received tenders to purchase $93.8m of Chilean 8% notes due 2019 or about 48% of the outstanding bonds. Investors who opted for new bonds will receive $1,000 in 2021s plus $150 in cash per $1,000 principal of existing bonds if they had tendered prior to July 27. Thereafter, they will receive new bonds plus $110 in cash as long as they tender before the final deadline of August 10. Holders choosing cash got $1,130 per $1,000, and only had until July 27. Citi and Deutsche Bank are acting as dealer managers.
Brazil’s Derivative IOF Could Encourage Global BRL
Neither bankers nor investors see the Brazilian government’s new IOF tax on derivatives diminishing the attractiveness of overseas issuance by the country’s companies. Indeed, the move may be another reason for accounts to migrate to the global BRL market as they look to avoid the increasingly onerous tax burdens being imposed onshore. “If the gap we’re seeing between offshore and onshore levels remains, it could make global BRL issuance more attractive [to investors],” says a New York based DCM banker. The new tax will likely make it cheaper for international buyers to hedge currency risk offshore, he adds. “This should drive more investors into global BRL,” adds another banker, noting a secondary rally in outstanding global-BRL bonds. “It will not change investing behavior fundamentally, but it will make things a bit more expensive for us,” says a North American EM debt portfolio manager. He explains that even if he hedges offshore, he expects it may still involve a counterparty using onshore hedging, and the cost is likely to be passed on. So far the impact of the new tax, which is part of the government’s effort to contain the strength of the BRL, has had a greater impact in the FX markets, where liquidity has already fallen and is expected to shrink further with Goldman Sachs downgrading the stock of BM&FBovespa on the expectations there will be fewer transactions. This could deter fast money, but the larger question for buy-and-hold types is the overall direction of government policy. “If investors see more and more controls coming, you will see a lot of interest move away from Brazil,” an EM bond investor says.
Cemig Wraps Up Non-Deal Roadshow
Brazilian utility Cemig is wrapping up non-deal roadshows this week with Deutsche Bank after visiting international accounts. The borrower isn’t expected to tap anytime soon given it has no immediate funding needs, but it could try its luck later this year or perhaps in early 2012, says one banker. The utility is seen as a prime candidate for an inflation-linked BRL global issue much like Banco Votorantim did earlier this year. With revenues in reais and linked to inflation, utilities like Cemig are being targeted by banks pitching this idea. This comes amid much talk about more nominal global BRL deals on the horizon, with Banco Safra heard late Thursday announcing roadshows for such a trade through itself, JPMorgan and UBS.
Chilean Investor Sells $120m Local Bond
Chile’s Sociedad de Inversiones y Servicios de la Construccion has raised UF2.5m ($119m) from the sale of two local bonds. The investment vehicle of construction trade association Camara Chilena de la Construccion chose to place two of three possible tranches in a deal that saw 2.3x demand. A CLP21.8bn ($48m) 2016 peso-denominated tranche priced at 100.01 with a 6.80% coupon to yield 6.79%. A UF1.5m UF-denominated 2032 tranche with a 10-year grace period priced at 96.96 with a 3.6% coupon to yield 3.86%. Both tranches came at the same spread of 74bp to government bonds, according to a banker on the sale. A 5-year UF tranche included in the original registration was not used. Celfin and IM Trust managed the sale, rated AA/AA+ on a national scale. Inversiones la Construccion holds stakes in the AFP Habitat pension fund, insurance companies Camara and Isapre Consalud, while also having holdings in clinic operator Red Salud and other companies.
Colombia Expected to Hike Rate Today
Colombia’s central bank is expected to hike its rate by 25bp to 4.50% today, although Goldman Sachs says there is a moderate probability of a pause in the normalization cycle. The monetary policy committee was divided on its decision to hike the rate a month ago. Goldman cites currency appreciation and tolerable inflation dynamics as reasons behind a potential pause. Deutsche Bank says it expects the bank to keep the rate at 4.25%.
Elektra Crosses Finish Line
Mexican retailer Elektra put to bed its first international bond in over 10 years after printing a new $400m 7-year NC4 Thursday at 98.656 with a 7.25% coupon to yield 7.50%, in line with guidance and earlier investor expectations of a 7%-8% finish. Some accounts certainly wavered over a credit controlled by controversial Mexican magnate Ricardo Salinas, and the book size was heard to be modest, with some accounts hearing $500m plus on Thursday morning, but demand was sufficient to upsize the trade from an initial target of $350m and stick to 7.50% area guidance. Indeed, some 185 accounts were thought to have participated. “That’s not a bad tally – but I would wager a larger portion of fast money involved than you’d usually expect,” says a trader. .On the break, the bond slipped a touch to 98.50 bid, but like recently issued bonds from sister company TV Azteca, Elektra was expected to eventually perform relatively well after a less than perfect start. Interest payments fall on February 6 and August 6, starting next year. The bond carries a make-whole call of T+50 prior to August 6 2015 and is callable thereafter on August 6 at 103.625 in 2015, at 101.8125 in 2016 and at par in 2017 and thereafter. There is also an equity clawback for up to 35% of the bond at 107.25 before August 6 2015. Joint bookrunners were BCP Securities, Jefferies and UBS.
Haiti Receives IDB Grant
Haiti will receive two grants from the IDB totaling $90m to help finance construction of an industrial park in its northern region and to support efforts to modernize its energy sector. Since the 2010 earthquake, the IDB has approved more than $340m in grants and disbursed $255m. About 70% of Haiti’s population has no access to electricity. Available generation capacity stands at less than one-third of the estimated 500 megawatt demand.
Minerva Shrinks, Discounts to Finish Convert Deal
Minerva’s convertible debentures priced below the range, to raise BRL190m ($121.17m), less than the BRL300m it had targeted. In what was thought to be the Brazilian market’s first-ever public sale of mandatorily convertible debentures, the meatpacker shrunk the number of 2015 notes to 200,000 from 300,000, and priced below the 97-103 range at 95. The interest rate – 100% of DI – and conversion price range – BRL6.00-BRL8.00 – were established prior to bookbuilding. Shares closed at BRL5.39 Thursday. The deal was fortunate to get done, after leads extended the bookbuilding period by one day as demand sagged in markets around the globe. Most issuers of late, including Brazilian Copersucar, and Uruguay’s Union Agriculture Group, have had to cancel equity deals, and nobody else in the region has launched. ECM bankers expect a lull in the new issuance market, until there is more clarity on the US debt situation, the euro-zone debt problems and more stability is seen in Brazil’s domestic market. Though the equity pipeline has been healthy all year, the bankers report shrinking backlogs of yet-to-be-announced transactions. Minerva plans to use the proceeds to repay existing debt, and for working capital. Minerva is rated BBB minus on a national scale. Goldman Sachs, Deutsche Bank and Banco do Brasil were leads.
Argentina Invites More Creditors into Fold
Argentina moved to bring more creditors into the fold after kicking off Wednesday a small debt swap for holders of tax credits, offering them the same terms and conditions as those presented to holdouts. The tax credits were created in 2001 after the government accepted both interest and principal on certain bonds as payment for taxes. There are only about U$28m worth of such instruments outstanding and they are mostly held by locals, says a source familiar with the process. In exchange for the instruments, creditor will get Argentina’s 8.28% 2033s as well as cash. The operation is part of the country’s efforts normalize debt service with creditors, the Ministry of Finance says.