Brazilian private equity funds, known as FIPs, are lobbying the government for an exclusion to the recently increased IOF tax. Brazil last week hiked the charge to 6% from 4% to try and contain FX appreciation from heavy cash inflows. However, the ABVCAP local private equity and venture capital association argues that its members should not be subject to the tax, due to the long-term nature of their investments. Ken Wainer, managing principal at VBI Real Estate, says FIPs have to pay the 6% tax upon receipt of foreign funds. This is a heavy burden, he adds, since payment is required before any gains can be realized. A New York-based banker who invests in Brazil says the tax increase will cause a “small slowdown” by foreign LPs investing in PE in the short term. An ABVCAP spokesman says he does not expect any change until after the upcoming elections. If a foreign investor were to invest directly in a Brazilian company without going through an FIP structure they would not be subject to the IOF tax. However, they would get hit by a capital gains tax that can range from 15%-34%, explains Christiano Chagas, partner in Mayer Brown’s Sao Paulo office.
Category: Corporate & Sovereign Strategy
Correction: BNP Appoints New Loans Head
An October 21 Daily Brief entitled “BNP Appoints New Loans Head” incorrectly portrays the nature of the move. A corrected version follows:
Sarah Saint-Amand has left her role as vp in BNP Paribas’ loan syndications group, according to a spokesperson for the bank. She will be replaced by Kristie Pellechia, who has been in the bank’s restructuring division for the past two years. Ernesto Meyer remains head of loan syndication, but has relocated from Sao Paulo to New York.
Independencia Schedules Creditor Meeting
Independencia has called a creditor meeting for November 8 in an effort to modify its restructuring plan. The Brazilian beef company shut down its operations earlier this month after missing a coupon payment on its 2015 bonds. According to Barclays, the company is likely to be liquidated. “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. It spots the recovery value at 36-45 cents on the dollar.
Colombia Re-Assigns Spending
Spending plans of Colombia’s new government will remain broadly in line with the previous government’s, though some spending will be re-assigned and increased, German Arce, director of public credit and the national treasury tells LatinFinance. “We will re-assign around $1.5bn equivalent towards housing, infrastructure, agriculture, and science and technology education,” says Arce. He adds that the government will raise a further $2bn equivalent to go towards these sectors in 2011 and that this will largely be funded in the domestic capital markets. Arce adds that the government would not sell off strategic assets to fund projects, such as those relating to the oil sector but says some non-strategic assets, such has some small electrical plants could be sold off. Funding plans for 2011 include a dollar benchmark, and Colombia could also look to tap the Asian markets and look for investment from the Middle East. Patricia Morena, subdirector of external financing added.
IMF Sees 6% Growth in LatAm
The IMF says it expects GDP in LatAm and the Caribbean to grow 5.7% in 2010 and 4.0% in 2011. Brazil, Peru and Uruguay are expected to grow more than 7.0%, helped by export activity, while Caribbean economies are expected to grow at a slower rate of about 3.0% in 2010 due to its dependence on the US economy, which is seeing slow growth.
Moody’s Chops Su Casita’s Rating
Moody’s has downgraded Mexican mortgage lender Hipotecaria Su Casita to C from Ca. The change comes after Su Casita missed payments of MXP300.0m on principal and MXP6.0m on the interest for its Casita 06 notes, as well as principal and interest on its Casita 01810 and Casita 01910 notes for MXP384.5m and MXP40.2m, respectively. Moody’s says Su Casita’s current liquidity position is weak, and the C ratings reflect the potential for above-average loss severity on Su Casita’s senior unsecured debt as the company continues to negations with all its creditors on a restructuring.
Brazil Jacks Up Bond Tax, Again
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.
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.
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.
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.