EM local markets are expected to grow by a minimum of 10%-15% per year over the next decade, according to JPMorgan’s local markets guide. The universe of EM local currency debt issued by sovereigns and corporates has tripled since 2002 to $7.0trn, according to the report. Strategic inflows into local currency government debt markets exceeded $47bn in 2010, 50% higher than the previous record of $29.8bn in 2007. Meanwhile, EM sovereign borrowing needs in the international capital markets stand at only $81bn this year, with LatAm expected to represent $16bn, against $57bn for EMEA countries. JPMorgan says EM local markets are unlikely to see a repeat of the record foreign buying that occurred in 2010, and expects foreign buying to drop to $107bn in 2011, down from $174bn in 2010. Inflation is expected to remain a top concern among EM economies, particularly in LatAm. Inflation-linked represent 75% of domestic debt stock in Chile, 32% in Colombia, and 28% in Brazil. JPMorgan says it expects the asset class to continue to grow as investors look for instruments that can retain value over the medium to long term.
Category: Corporate & Sovereign Strategy
Ambev Upgraded by Fitch
Ambev’s foreign currency long-term IDR was upgraded to A minus from BBB by Fitch, according to a statement by the ratings agency. The outlook is stable. The rating upgrade is a result of Ambev’s continued commitment to a strong capital structure and the favorable outlook for economic growth in Brazil. Ambev’s ratings are amongst the highest corporate ratings issued by Fitch in LatAm due to the company’s excellent business position, strong cash flow generating capacity, and the stability and defensive nature of the beverage industry. The ratings are higher than Brazil’s country ceiling of BBB+ due to the geographic diversification of the company’s operations and cash flows, and the close credit linkage of Ambev and AB InBev.
Independencia Selling Assets
Independencia says it will be accepting bids for various company assets through July 12. The Brazilian meatpacking company ceased operations in October and has been operating under bankruptcy. It had been seeking to convert $800m in debt into new equity in order to restart operations. An official at New York-based boutique BITG, which has been advising Independencia, did not respond to requests for comment. Barclay’s has said the company is likely to be liquidated.
Localiza Debentures Get Aa1 mark
Localiza’s new bonds have been rated Aa1 on a national scale, according to Moody’s. The Brazilian car rental company is in the process of selling BRL500m in 2017 bonds amortizing in years 5 and 6, and has set a 115% of DI interest rate ceiling. Around 60% of the proceeds will be used to repay debt and around 40% will be used for fleet investment and to reinforce working capital. Bradesco, BTG Pactual and Itau, are managing the sale. The transaction is expected to roadshow in mid-May and close around June 10.
Alejandro Vollbrechthausen to Head GS Brazil
Alejandro Vollbrechthausen is joining Goldman Sachs as president of its Brazil bank, responsible for managing the Sao Paulo office across all divisions of the firm. Vollbrechthausen will report to the divisional leadership. He replaces Valentino Carlotti, who will relocate to New York. Vollbrechthausen previously managed the sales, structuring and derivatives marketing effort in LatAm and Emerging Markets Sales desk in New York. He joined Goldman Sachs in 2001 as VP in FX LatAm sales and was named MD in 2003 and partner in 2006. Goldman has also hired Rodolfo Suarez from Safra as MD responsible for debt financing in Brazil, working on the team headed by Richard McNeil out of New York. “We’re going to substantially increase our investment banking footprint,” says Carlotti, who will remain in Sao Paulo while Vollbrechthausen transitions into his new role.
Axtel Downgraded by Moody’s
Axtel saw its rating downgraded to B3 with a negative outlook from B2 by Moody’s. The Mexican telecommunication company The ratings agency says the action is in response to negative free cash flow generation and uncertain business prospects. Cash levels dropped to $72m March 31, down from $106m on December 31, 2010, against annual interest payments of $80m. The company also faces significant competition from incumbent players such as Telmex, the ratings agency says.
Kansas City Southern de Mexico Upgraded
Railway company Kansas City Southern de Mexico has been upgraded to Ba3 from B1 by Moody’s, with a positive outlook, according to a release by the ratings agency. The reason for the upgrade was revenue growth, in line with higher growth in the Mexican industrial sectors. The company’s operating margins have improved, which has led to increased profitability. This, together with reduction of debt levels, has led to an improvement of the company’s credit metrics, says Moody’s. Moody’s expects a continuation in revenue growth. It adds that the company could be upgraded if railroad operations show sustained growth over the next six to 12 months.
Uruguay Tourism Surges
Uruguay saw tourism spending surge to $1.1bn in Q1 2011, a 58.7% increase from the $675m for the comparable period a year ago, according to a report by JPMorgan. The bank attributes the increase to a jump in visits from Argentineans of 49.2%, representing 63.6% of total spending last quarter. There were also considerable increases in the number of Brazilian and Chilean tourists to Uruguay. Visitors are also spending more on an individual basis, with personal spending increasing 26.2% to an average of $119 per person per day. Uruguay’s Mujica administration estimates that the tourismk industry accounts for 6.0%-6.5% of GDP. JPMorgan says it expects the government will achieve its goal of growing tourism revenue to $1.8bn by 2014.
Vivo CEO Leaving
Robert Oliveira de Lima, Vivo’s CEO, will be leaving the company at the end of June, according to a statement on the CVM. The Brazilian wireless company does not say who will be replacing him.
Suzano Readies Convertible Domestic Bond
Brazilian pulp and paper company Suzano Celulose e Papel is planning to sell BRL1.2bn in 2013 convertible bonds in a private sale, it says. The deal is divided into a BRL401.8m convertible into preferred shares, and a BRL798.2m tranche convertible into common shares. Both pay interest at ICPA+ 4.5%, and are convertible after 2 years at a rate of BRL17.39. Proceeds will fund construction on a new unit at its industrial plant in the state of Maranhao. An investor relations official explains the debentures are to be offered to controlling shareholders, with BNDES agreeing to guarantee to buy up to BRL572m of the remainder. Suzano is rated Aa1/A+ on a national scale.