Chile’s central bank tightened its policy rate by 50bp to 4.00%, 25bp more than expected by the market. The bank cites uncertainty and market volatility caused by the natural disasters in Japan and the political turmoil in Arab countries. However, it points out that on the domestic front, demand and employment figures continue to evolve positively. “Clearly they are trying to pull down inflation expectations,” says Nomura. Goldman Sachs had warned of a possible 50bp hike, although it predicted a 25bp hike, as did most market participants. “At this stage we assess a 20% probability of a 50bp rate hike (down from a probability of 35% due to the high uncertainty around the outlook for the global and Japanese economy following the recent devastating developments),” Goldman had said.
Category: Corporate & Sovereign Strategy
Fitch Upgrades KUO to BB
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.
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.
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.
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.
Gruma Names CFO
Gruma has named Alejandro Barrientos as CFO, it says, replacing Raul Alonso Pelaez, who had been promoted to CEO of the Mexican tortilla maker in December. Barrientos joins from Credit Agricole, where he was a banker and executive in various positions. Gruma has been working its way back from a 2009 debt restructuring, most recently raising MXP9.23bn from the sale of its 8.8% stale in Banorte.
Harneys Appoints First Brazil Representative
Harneys, the offshore law firm, has appointed Maria Pia Buchi as its first permanent representative in Brazil, it said in a release. Buchi will head business development in Brazil and will be based in Sao Paulo and Rio de Janeiro. Buchi was previously in-house counsel at Triscorp Investimentos and Opus Gestao de Recursos.
Hike Expected for Chile Rate
Market consensus points to Chile’s central bank tightening its rate by 25bp, bringing it to 3.75% today. “Though the minutes from the February meeting – in addition to recent comments by central bank officials – suggest rising concerns about the inflation outlook, the central bank seems committed to continuing its tightening cycle at a gradual pace, most likely in 25bp increments,” says Morgan Stanley. “At this stage we assess a 20% probability of a 50bp rate hike (down from a probability of 35% due to the high uncertainty around the outlook for the global and Japanese economy following the recent devastating developments),” according to Goldman Sachs.
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.
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.