Peru’s central bank is expected to tighten its monetary policy rate today. Morgan Stanley forecasts it will hike 25bp to 3.25%, less than the 50bp increase seen in August and September, due to low inflation. Barclays also expects a 225bp hike, with the rate ending at 3.5% by the end of the year. Bank of America Merrill Lynch meanwhile predicts a 50bp hike. It expects Peru to end the year at 4.25%.
Category: Corporate & Sovereign Strategy
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Bolivia Gets Ratings Upgrade
Fitch has upgraded Bolivia’s rating to B+ from B. the outlook is stable. The rating upgrade reflects Bolivia’s strengthened fiscal and external balance sheets, the economic authorities’ demonstrated ability to preserve macroeconomic stability, as well as a recent track record of timely debt payments, Fitch says. The economy’s resilience was evidenced by a real GDP growth rate of 3.4% in 2009, while growth for 2010-2011 will remain above 4%, according to Fitch, driven by a recovery in external demand and a strengthening of consumption and public investment expenditure.
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Brazil Hikes IOF to Stem BRL Rally
In its attempt to contain BRL appreciation, Brazil’s finance ministry increased the IOF financial transaction tax on foreign investor inflows into domestic fixed income securities to 4% from 2%. Market consensus points to only a short-term effect on the BRL. Luis Cezario, an economist with Goldman Sachs, believes the BRL could weaken slightly to BRL1.70-BRL1.80 per USD within the next 1-2 months from a current range of BRL1.65-BRL1.75. RBC agrees, saying that the tax hike will induce some short-term weakness in BRL initially. “However we expect this effect to be transitory and that appreciation pressures should remain fairly strong given the pace of capital inflows are unlikely to be altered materially by this tax change in the current context of G4 currency weakness, quantitative easing and significant excess global liquidity in the world’s financial markets,” the shop says. Domestic bond yields could spike 20bp-40bp along the curve with foreigners’ large holdings of issues in the long-end likely having a larger impact there, encouraging a steepening of the yield curve in the immediate future, RBC adds. On Tuesday, BRL closed 2.4% stronger at BRL1.66 per USD. This is not the first time the ministry has hiked the IOF tax to contain BRL appreciation. Credit Suisse, which also agrees that the effect will be temporary, says that in March 2008 the IOF rate was increased to 1.5% from 0.0%, reduced back to zero in October 2008 and then raised to 2.0% in October 2009. The new change, which took effect yesterday, will not affect equity investments, for which the IOF tax remains at 2%.
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Cablemas Rating Rises
Fitch upgraded the ratings of Mexico telecom Cablemas to BB from BB minus to reflect the company’s improved financial profile and stable debt levels. Fitch expects leverage measured as total debt to Ebitda will remain between 1.5x and 2.0x in the medium term. In addition, it says the company’s debt maturity schedule is manageable. Total debt-to- Ebitda for the last 12 months ended June 30 is 2.1x, down from 2.3x in 2009.
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Fitch Lifts BRMalls to BB
Fitch has upgraded the rating of Brazilian mall developer BRMalls Participacoes to BB from BB minus. The outlook is stable. Fitch says the upgrade reflects the company’s dominant business position as the largest Brazilian shopping center operator with participation in 37 shopping centers, stable and predictable cash flow generation, Brazil’s positive economic environment, geographical and property revenue base diversification, and low working capital requirements with renters responsible for most maintenance expenses. It also says BRMalls’ Ebitda for the last 12 months ended June 2010 was BRL358m, which positively compares with its Ebitda levels of BRL320m in 2009. The company’s net debt/Ebitda ratio was 2.0x at the end of June 2010. The company’s net leverage was 1.0x at the end of December 2009.
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CSN Gets S&P Upgrade
S&P has upgraded the ratings of Brazilian steel company CSN to BBB minus from BB+ to reflect the company’s operating performance, which it says has been stronger than that of its peers even during the market slowdown of 2008 and part of 2009. “We believe CSN will consistently sustain strong liquidity, as it has historically, mitigating its aggressive gross leverage ratios,” S&P says. It adds that its projections suggest that the company’s net debt ratios are adequate for the rating category, even using conservative steel price assumptions, despite CSN’s ongoing large, but partly discretionary, capital expenditures program and aggressive dividend distribution. S&P says the company reported BRL9.7bn in cash as of June, compared with BRL1.4bn in short-term debt.
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S&P Affirms Usiminas Rating, Outlook
S&P has affirmed Brazil-based Usiminas’ BBB minus rating and its stable outlook. The agency says the ratings are supported by the steel company’s low gross debt leverage and adequate liquidity as well as favorable growth fundamentals. Total adjusted debt to Ebitda amounted to 2.9x as of June 30. It also has BRL3.6bn in cash and BRL597m in short-term debt. “We believe Usiminas will be able to maintain adequate credit metrics, even assuming higher capital expenditures and conservative price assumptions,” S&P says.
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Su Casita Dangles Longer Debt, Equity
Hipotecaria Su Casita has presented a restructuring plan to holders of its MXP8.74bn in debt, offering longer-dated new debt and equity. The troubled Mexican mortgage lender will offer holders of its MXP1.985bn in short-term (less than 12 months) local debt cash worth MXP1.30bn (65%) of the debt, new 3-year debt worth MXP99.2m and an equity position with MXP1bn book value, or 0.02% of total capital. Meanwhile, holders of long-term (1-year+) dollar and peso debt, which totals MXP6.75bn, are offered MXP1.50bn in new 5-year debt paying TIIE plus 250bp, MXP551m in 3-year debt, MXP500m in 10-year subordinated debt paying a 3% coupon that steps up to 8% and is worth 10% of the company in the event of conversion. It also offers an equity stake worth 19.98% of the company. The deal represents recovery value of 70% in the case of short-term debt, and 51% for long-term debt holders, Su Casita says. Su Casita, 40% owned by Spain’s Caja Madrid, has been seeking alternatives since a deal to sell to BBVA Bancomer fell through in September. Rothschild is advising on the restructuring process, according to a company official.
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Moody’s Chops Dominican Brewer
Moody’s has downgraded Cerveceria Nacional Dominicana’s (CND) corporate family and senior unsecured ratings to B1 from Ba3. The outlook is stable, up from negative. S&P downgraded the Dominican brewer to B from B+ last month. Moody’s cites weaker than anticipated operating performance and credit metrics compared with expectations, a higher tax burden, competition and softer demand. CND’s revenues have remained flat while earnings were under pressure following changes to the Dominican Republic’s tax regime, while pricing power has been pressured by the economic downturn. The ratings agency reports that the stable outlook reflects expectations the brewer will successfully refinance its $31m bridge facility by issuing local notes in the Dominican market, and begin addressing the maturity of its peso-linked 16% global notes in March 2012.
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Independencia Misses Coupon Payment
Independencia will not make an upcoming interest payment on its 15% of 2015 bonds, the meatpacker says. The Brazilian company that emerged from bankruptcy protection proceedings in March cites “ongoing financial challenges” and notes it is in discussions with creditors to restructure debt. “The company has continued to struggle with its working capital requirements and has been unable to resume its operations at the level that will be sufficient to meet its projected obligations,” it says. Independencia has been looking to raise new equity capital as part of a liability management transaction in which its unsecured debt is converted into equity, and new investors brought in. “The default is not entirely unexpected by the market, considering how the bonds were trading,” says Barclays. It adds that holders of the 2015 now need to weigh whether to accelerate to try and liquidate the collateral, or wait for a proposal from the company. “Creditors are more likely to wait for a proposal before reacting. Until that happens, there is really little incentive to get involved in the capital structure,” adds Barclays.