S&P promotion of Brazil to investment grade will increase fixed-income flows and lower the sovereign’s cost of funds by 40bp, Citi says. “From a cost of capital view, it looks like the sort of potential of other sovereigns with recent action,” strategist Geoffrey Dennis says, noting that the market has priced in most but not all of the upgrade. Citi says Brazil yields, having traded at around 6.30% before the announcement, have already fallen to 6.09% on a blended USD sovereign bond yield basis. This is still above investment-grade Peru’s 5.70%, leading to the projection that Brazilian cost of capital could drop another 40bp.
Category: Bonds
Posted inDaily Brief
Ethanol Startup Fuels Loan Package
Brazilian ethanol startup CNAA is putting together a $670m financing including an IDB A/B loan and a pre-export facility, an official close to the company tells LatinFinance. The privately held greenfield company hopes to achieve a tenor of 15 years on a $250m A loan with pricing potentially in the Libor plus 300bp-350bp region, according to the executive. A $300m syndicated B-loan could reach 13 years and carry a margin of Libor plus 300bp, he adds. BNP Paribas has been tapped to lead the syndication, expected to get underway shortly. CNAA has also recently closed a $120m pre-export loan via Bradesco, ABN AMRO and Banco Espirito Santo. The 7-year club pays Libor plus 275bp. According to the executive close to the company, the A/B transaction is the first project loan for Brazil’s ethanol and sugar sector. He sees structured finance playing a bigger role in his industry as companies build out mill complexes. Odebrecht ethanol startup ETH also plans to use project finance for its initiatives, that company’s officials told LatinFinance late last year. CNAA has roughly $330m in equity, much of which is held by private equity funds belonging to Goldman Sachs, Carlyle Riverstone, Merrill Lynch, Discovery Capital, and Global Foods. SantelisaVale owns a 28% stake in CNAA.
Posted inDaily Brief
Debt Ratio, Policy Work Needed for Brazil Rate Hike: S&P
Brazil will need to see a sharper decline in its debt-to-GDP ratio and improve its fiscal policy in order to move up the ratings ladder after reaching investment grade last week, S&P analysts said in a conference call Friday. “The key to keep moving up the ratings table will be an effort to bring fiscal policy in line with higher-rated countries,” says Lisa Schineller, S&P MD. She sees the ending of the CPMF tax in December as an example of a setback. The decision to raise the Selic 50bp to 11.75%, the first increase in three years, was also key to the timing of the rating action. The move “reinforces the operational independence of the central bank, which is a key underpinning of this rating and an example of a proactive policy move,” she said. S&P also expects the real to depreciate this year due to a widening current account deficit, and a narrowing trade surplus.
Posted inDaily Brief
IDB Approves Brazil Environmental Loans
The IDB has approved an $83.2m 25-year variable interest rate loan for improvements in the quality of water and in infrastructure to avoid floods in Porto Alegre, Brazil. The facility will help to improve environmental management in the municipality of Porto Alegre and promote efficient municipal water, sanitation and storm drainage services, the multilateral says. The loan has a 5-year grace period. The multilateral also approved a $56.7m 25-year loan to the municipality of Goiania for an urban environmental program in the Macambira and Anicuns River watersheds.
Posted inMagazine
The Chinese Curse
Michael Pettis cut his teeth in LatAm DCM two decades ago. The Beijing-based academic warns of further EM crisis.
by James Crombie
Posted inMagazine
Shifting the Paradigm
LatAm has undergone constant evolution in the last 20 years, says CAF president Enrique García. But income inequality remains a glaring problem.
by Julio Urdaneta
Posted inMagazine
Local Currency Extensions
After a long struggle to define itself as a relevant institution, the IDB is proving its worth as a local currency innovator. It seeks to lend more and leverage guarantees.
by James Crombie
Posted inDaily Brief
IDB Approves Financing for Brazil’s Sabesp
The IDB has approved a $250m 15-year loan for Sabesp, the water and wastewater company of the state of Sao Paulo, Brazil, to support capital investment. The multilateral will provide Sabesp an A loan of up to $100m from ordinary capital and a syndicated B loan of up to $150m from commercial banks to help finance part of the utility’s 2007–2010 capex program. Funds will also be used to refinance part of Sabesp’s debt, including a eurobond maturing in June 2008. Pricing and terms were not disclosed. The deal is not guaranteed by the sovereign.
Posted inDaily Brief
Peru LNG Launches Upsized $400m Syndication
Peru LNG has launched to retail a $400m B loan backed by the IDB that is part of the regasification terminal’s $2.5bn financing package. The 15-year loan (C+12 years) was upsized from an original $250m amount, based on interest from participants, according to a banker familiar with the transaction. The sponsor and MLAs Societe Generale and BBVA are inviting fewer than 10 banks, hoping to add to ING, Sumitomo Mitsui and Mizuho, who joined prior to launch. The rest of the financing package supporting the more than $3bn project includes ECA guarantee facilities from the US Export-Import Bank ($400m), Export-Import Bank of Korea ($150m) and Italy’s Sace export credit agency ($250m). There is also a $300m IFC A loan, a $400m IDB A loan, a $150m direct loan from the Export-Import Bank of Korea, and up to $350m in local bonds underwritten by Peruvian banks and arranged by Banco de Credito del Peru. Sponsors Hunt Oil, SK Energy, Repsol YPF and Marubeni have contributed more than $1bn in equity.
Posted inDaily Brief
IDB Approves Loan to Chile’s Public Transport
The IDB has approved a 16-year $400m non-sovereign guaranteed loan to provide financial support to Transantiago, the public transportation system of Santiago, Chile. The proceeds will be managed by Transantiago Financial Administrator (AFT), the private sector entity responsible for the system’s payments and collections. The loan will also support Chile’s comprehensive plan to improve the operation and quality of Transantiago’s bus and subway services, which are used by some 5.4m passengers a day. The IDB is also preparing a $10m loan for a program led by Chile’s Ministry of Transportation and Telecommunications to establish the Metropolitan Transportation Authority, which will monitor Transantiago’s services.