Fitch has upgraded the ratings of Mexican industrial holding company Grupo KUO to BB from BB minus. The outlook is stable. Fitch says the upgrade is based on KUO’s improved operating and financial profile, sound performance across its business portfolio during the recent economic cycle and internal strategies to mitigate industry volatility. In addition, KUO’s debt maturities for the following years are minimal and can be easily covered by internally generated funds, it adds. At year-end 2010, total debt-to-Ebitda improved to 2.3x from 2.6x a year ago, and Ebitda-to-interest expense was 3.1x, higher than 2.8x in 2009. Fitch anticipates KUO will maintain these ratios relatively stable at 2.0x and 3.1x, respectively.
Category: Corporate & Sovereign Strategy
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Japan Will Not Impact LatAm
The earthquake and tsunami that devastated Japan are not expected to have a significant impact on LatAm. The trade link between Japan and LatAm is fairly weak, according to Nomura, which adds that as of 2009, Japanese trade with LatAm accounted for only 4.7% of its total. The sum of exports and imports from LatAm to Japan only amounts to 3.0% of the total trade to the region. In addition, Nomura says there is almost no outward FDI from LatAm to Japan. Meanwhile, Deutsche Bank says that “the main channel of transmission of weakness in Japan for LatAm equities would be via potential pressure on commodities prices.” According to BCP “in the short run, [the disaster] will depress commodity prices as the [Japanese] government decides how to address the public’s safety concerns about the nuclear generating facilities.” Nevertheless, this may not be a sign of trouble for LatAm commodity exporters, according to Nomura. Chile, which sends about 12% of its exports to Japan could benefit from a rise in demand, even if commodities prices are lower, Nomura says. Peru may also benefit, albeit to a lesser extent. About 6% of Peru’s exports go to Japan. Brazil, another important commodity producer, only sends about 3% of its total exports to Japan, according to Nomura. RBC says fears of Japanese repatriation of Brazilian financial assets is unwarranted, though there is a risk of a slowdown of further Japanese flows into Brazil in the short term as money is needed to finance local reconstruction.
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Su Casita Readies Offer
Su Casita is preparing a MXP7.4bn exchange offer to bondholders, it says, to be launched “soon,” and give creditors about 70% recovery. The deal, which the company has been discussing since defaulting on MXP debt last year, involves outstanding USD bonds and long-term and short-term Mexican domestic debt. Su Casita will propose offering domestic debt holders up to MXP2.49bn in new 7-year local bonds paying TIIE plus 1.0% stepping up incrementally to TIIE plus 2.5% in year 4, and also up to 38.4% of its equity, estimated at MXP1.48bn. It is offering USD bond holders up to $60m in new 7.5% 7-year bonds and up to 11.6% of its equity, estimated at $447m. The offer is contingent upon an acceptance rate of at least 98% of bondholders, Su Casita says. If unsuccessful, the mortgage lender will enter bankruptcy processes. In order to conserve funds for the process, the company says it has stopped paying interest on USD debt. It does not give an exact timeframe for the offer. Rothschild is advising Su Casita.
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More IPOs in 2011: Peru Bolsa
Peru’s stock exchange should see 3-6 IPOs this year, its CEO says. “This year we expect a larger number of IPOs,” Francis Stenning tells LatinFinance. Last year saw just one, fishery operator Exalmar, but Stenning says two factors support more issuance in 2011. Economic growth in Peru has been exceptional over the last few years, and this is now translating into small and medium-size companies needing growth funds. Interest rates are also rising this year from historic lows last year that made debt funding very attractive, and this year more companies should opt for equity. The integration with the Santiago and Bogota bolsas should also help by encouraging liquidity. This process should be finalized around May 1, Stenning says, with an official announcement of the date coming soon. After the tie up, the next project on the stock exchange’s agenda is to proceed with the merger with Bogota’s exchange. A letter of intent was signed in January, with shareholder approval expected by the end of this month.
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Peru Approves Cencosud Bank
Peru’s banking regulator has allowed Chilean retailer Cencosud to expand its banking operations into that country. “We find this as positive as the company will be able to reduce the cost of funding,” says Celfin. BCI Estudios meanwhile, says that with this authorization, Cencosud has introduced all of its financial operations into Peru, where it had already introduced the Metro card, similar to the Jumbo card it has in Chile. These are credit cards that allow shopper to make purchases in all of the Cencosud’s stores.
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Peru Cement Sector Booms
Peru’s cement sector is growing at a record pace, according to the Association of Cement Producers (Asocem). The country needs approximately $38bn of investment in the next 5 years in energy, sanitation and transportation infrastructure to ensure annual economic growth of 6% or more. Meanwhile, Peru faces a deficit of 1.2m housing units as of the start of 2011, according to the Peruvian Construction Chamber (Capeco). The twin deficits, on top of forecasts of more than $56bn in new mining and energy projects through 2020, is fueling significant growth. Cement consumption in November 2010 jumped 22.9%, to 754,422 metric tons compared to the same month in 2009. In 2010, cement dispatched from the 7 companies with factories in Peru reached 8.1m metric tons, 15.1% more than 2009, according to Ascocem. This year, the cement sector is expected to grow by 12% in the first quarter, slower than for the corresponding period in 2009, according to Pablo Nano, a sector analyst with the economic research unit of the Peruvian branch of Canada’s Scotiabank. “There is dynamic growth [in the cement market] with rates well above 10% annually,” says Juan Carolos Cardenas, general manager of Mexico’s Cemex in Peru.
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Remittances to LatAm, Caribbean Increasing
Remittances to LatAm and the Caribbean are likely to rise this year after stabilizing in 2010, according to the IDB’s Multilateral Investment Fund. Measured in USD, money transfers made by LatAm and Caribbean migrants to their countries of origin reached $58.9bn in 2010, virtually unchanged from $58.8bn in 2009, when remittances saw a 15% drop due to the effects of the global economic crisis, the MIF says. Although remittances stabilized in 2010, the MIF says they increased in some sub-regions. Transfers to CentAm jumped 3.1% while those to Haiti increased 20%, largely due to the humanitarian crisis caused by the earthquake. “Remittances to LatAm and the Caribbean are likely to continue rising in volume in 2011, although still below the double-digit rates they attained in years prior to the global crisis,” the MIF says, adding that the pace of growth will depend principally on how strongly the job markets in source countries such as the US and Spain recover.
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S&P Upgrades Colombia to Investment Grade
S&P has upgraded Colombia’s sovereign ratings to BBB minus/A-3 from BB+/B, bringing it to investment grade territory. The outlook is stable. S&P cites the growing resilience of Colombia’s economy to withstand external shocks and political consensus on market-oriented economic policies. “The country’s overall net external creditor position is projected to strengthen modestly in the coming years, while the public sector’s debt burden – as measured by its share of GDP – will likely stabilize,” the agency says. S&P is the first of the rating agencies to promote Colombia to investment grade, but Moody’s and Fitch are expected to do so soon. “We expect Fitch and Moody’s to give Colombia an investment grade rating before the end of the first quarter,” says Bancolombia. Moody’s has said it could upgrade Colombia before the summer. It has a Ba1 rating for the sovereign. Fitch, meanwhile, has said that it is assessing the effect of rising oil and mining production on Colombia’s fiscal and external accounts. It has a BB+ rating for Colombia.
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Vicario Named BAML Director
Fernando Vicario has been named director of corporate banking for emerging markets excluding Asia at Bank of America Merrill Lynch in what will be a new position. Vicario will be based in London and report directly to Andrea Orcel, executive chairman of global banking and markets, and Joel Van Dusen, global president of corporate banking coverage. Vicario has been with BAML since 1995.
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Citi Confirms Brazil Head Hire
Citi has confirmed it has hired Andre Kok as managing director and head of global banking for Brazil. Kok will report to Eduardo Cruz, global banking head for LatAm, and Gustavo Marin, CEO for Citi Brazil and South Cone. Kok will be based in Sao Paulo and be responsible for corporate and investment banking in Brazil. Previously, Kok stepped down as head of investment banking at Itau last August. Kok had been with Itau for more than 5 years, after joining from UBS in 2005. He had been rumored to be considering a return to the Swiss bank.