Brazil has again hiked the IOF tax for fixed income investments, to 6% from 4%, in a move that analysts say will dent bonds and FX. Brasilia is also indicating that it will do more to stem the unprecedented inflows of portfolio money seeking relatively high returns in the local bond market. “While markets elbowed the first hike to 4% only 2 weeks ago, this move hits the markets with a considerably more fragile technical position,” says Barclays, which sees a threat to BRL and a sell off in the long end of the local curve. On top of 45bp-35bp in additional yield required to compensate for the IOF jump, it also expects the market to price additional risk premium in the curve to reflect fears of even higher IOF, or other measures, in the future. The IOF tax on BM&F margins will rise to 6.00% from 0.38%. The raise follows an increase to 4% from 2% earlier this month, while the rate for equity inflows remains 2%. “The measures should influence FX and fixed income markets negatively in the coming days,” says Barclays. “This is a bit more comprehensive than just raising the IOF tax in the past as it targets foreigners’ leveraged positions,” says Standard Chartered. However, it adds that the impact will likely be temporary. “The fact remains that Brazil has the highest interest rates in the world, and coupled with the likelihood of further quantitative easing from the Fed and possibly the Bank of England, global liquidity will look to Brazil and other places for yield,” says Standard. “Implementing controls is really just treating the symptoms which can have temporary benefits but does not resolve the underlying issue,” it adds.
Category: Corporate & Sovereign Strategy
UBS Confirms Centola as Brazil IB Head
UBS has confirmed that Eduardo Centola will be CEO of the investment bank in Brazil. Lywal Salles will join him as chairman of UBS Group Brazil, while Daniel Mendonca Barros will become CEO of the UBS broker-dealer and Head of the UBS Securities business in Brazil, after the closing of UBS’s acquisition of Link Investimentos. All 3 will be based in Sao Paulo. Centola joins from Standard Bank where he served as CEO of the Americas, and will report to Raul Esquivel, head of UBS Investment Bank for LatAm, and Salles. Salles will report to Robert Wolf and Raul Esquivel, head of UBS investment bank for LatAm.
BP Reported Selling Venezuela Assets
A BP spokesman declines to comment on statements by German Khan, CEO of BP joint venture TNK-BP, stating that his company would acquire several of the oil company’s assets in Venezuela. According to press reports, Khan told reporters TNK-BP would acquire 16.7% of Petromanagas, 40% of Petroperija and 26.6% of Bougeron. BP also declined to comment on the potential value of those assets, though they have been estimated at $1bn, according to an industry banker not associated with the deal. Khan has been looking for assets to acquire in LatAm, the banker says, but this is his first acquisition of oil assets on the continent. He had previously acquired non-oil & gas assets outside of Venezuela, the banker says.
Ecopetrol Outlook Revised Up
Ecopetrol’s outlook has been revised to positive from stable by Fitch, after Colombia’s sovereign rating outlook was revised. Ecopetrol’s foreign and local currency issuer default ratings remain the same, at BB+ and BBB- respectively. Colombia’s outlook revision to positive reflects the country’s economic resilience and improved macroeconomic performance in relation to its peers, says Fitch. The country’s expected increase in oil and mining is also likely to benefit overall economic activity. Ecopetrol’s ratings reflect its strong financial profile, improving production capacity and adequate reserve levels, adds Fitch. The company’s growth strategy and associated capital investment are also considered aggressive. The ratings reflect the close link with the Republic of Colombia, which owns 89.9% of Ecopetrol.
Credito Inmobiliario to Meet Buyside
Mexico’s Credito Inmobiliario is set to meet fixed-income investors next week on a non-deal roadshow. The lender will begin Tuesday in Switzerland and visit London Wednesday. CEO Angel de Soto Hernandez and CFO Isabel Ruiz Serrano will headline the tour, managed by HSBC and Heritage Capital. The Ba3 lender is a fully-owned subsidiary of Caja de Ahorros del Mediterraneo.
Fitch Boosts Colombia Outlook
Fitch says it has improved the outlook on Colombia’s BB+ rating to positive from stable to reflect the country’s economic resilience and improved macroeconomic performance in relation to its peers. In spite of comparatively slow recovery by regional standards, Fitch says Colombia’s 5-year average growth, reaching 4.4% in 2009 and 4.3% in 2010, is expected to outperform the BB median of 3.5% and 3.1%, respectively. The outlook puts Colombia on track for investment grade early in 2011.
Su Casita Defaults on Debt Payments
Mexico’s mortgage lender Hipotecaria Su Casita says it has defaulted on MXP730m, including MXP306m in long-term debt. Su Casita last week presented a restructuring plan to holders of MXP8.74bn in debt, offering longer-dated new debt and equity. The deal represents recovery of 70% in the case of short-term debt, and 51% for long-term debt holders, Su Casita says. As a result, Moody’s downgraded the ratings of the mortgage lender’s senior unsecured debt and global scale local currency to Ca from Caa2. The ratings are on review for possible downgrade. Holders of MXP6.75bn in long-term notes denominated in pesos and dollars would receive MXP1.5bn in new 5-year debt guaranteed by non-operating assets, paying TIIE plus 250bp (7.345% all in), MXP550m in new 3-year instruments guaranteed by non-operating assets, and MXP500m in 10-year subordinated convertible bonds with rates of 3%-8%, representing 10% of the restructured company’s capital upon conversion, as well as capital equal to 19.98% of the restructured company. Moody’s says this is a distressed exchange, which it considers a form of default. Su Casita, 40% owned by Spain’s Caja Madrid, has been seeking alternatives since a deal to sell itself to BBVA Bancomer fell through in September. Rothschild is advising on the restructuring, according to a company official.
Independencia Liquidation Likely: Barclays
Lacking funding for operations, creditors of Brazilian beef company Independencia could initiate liquidation proceedings soon, Barclays Capital says in a report. “At this point, it seems very unlikely that Independencia will re-emerge out of a second restructuring in less than a year as a going concern, and therefore we believe that studying potential liquidation scenarios makes more sense for creditors,” the bank says, spotting a recovery value at 36-45 cents on the dollar. Despite discussions initiated in September to restructure debt and bring in fresh equity, the meatpacker announced this month it would miss an interest payment on its 15% of 2015 bonds. Recent press reports claim the company is unable to cover operating expenses and had to suspend operations. Officials at Independencia did not respond to a request for comment.
Correction: HSBC Adds Equity Head
An October 8 Daily Brief misspells the name of HSBC’s recently hired head of equity trading for LatAm. The correct spelling is Delfos Machado Neto.
Moody’s Chops Su Casita Debt
Moody’as has downgraded the ratings of Mexico mortgage lender Hipotecaria Su Casita’s senior unsecured debt and global scale local currency to Ca from Caa2. The ratings are on review for possible downgrade. The action follows the company’s announcement that it had presented a restructuring plan for all its debt to its debt-holders. Holders of MXP6.75bn in long-term notes denominated in pesos and dollars would receive MXP1.5bn in new 5-year debt guaranteed by non-operating assets, paying annual interest of interbank rate TIIE plus 250bp, MXP550m in new 3-year instruments guaranteed by non-operating assets, and MXP500m in 10-year subordinated convertible bonds with rates of 3%-8% representing 10% of the restructured company’s capital upon conversion as well as capital equal to 19.98% of the restructured company. Moody’s says this is a distressed exchange, which it considers a form of default.