Chile’s central bank is expected to raise its rate by 25bp to 5.25% today, according to market consensus. “Following three consecutive monthly 50bp rate hikes and a policy rate level that is now at 5.0%…we expect the central bank to slow the pace of rate normalization” Goldman Sachs says in a report. Morgan Stanley also predicts a 25bp hike. “Though momentum in the economy remains strong, inflation has remained well behaved and resolute central bank action has succeeded in bringing down inflation expectations; moreover, in its most recent minutes the central bank indicated some improvement in the inflation outlook,” the shop says.
Category: Corporate & Sovereign Strategy
Posted inDaily Brief
Celulosa Bond Gets B2 Rating
Cellulose producer Celulosa Argentina has received a B2 rating from Moody’s for its planned 2018 $150m dollar bond. Celulosa is looking for funds to repay debt and invest in forestry and its industrial plant. Citi and Credit Suisse have been hired for the transaction, which is expected in late June or early July. It would be the issuer’s dollar bond debut. Celulosa Argentina has operations and distribution subsidiaries in Argentina, Uruguay, Chile and Brazil.
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Peru Central Bank Pauses
Peru’s central bank kept its rate steady last night, despite consensus expectations of a 25bp raise to 4.50%. Celfin had cited higher food costs pushing inflation outside the central bank’s target range of 1%-3% as motivation for the move. Citi had predicted a pause in rates. “This measure comes as a result of waning increases in consumer prices,” according to the bank. “The board of directors addressed the fact that monthly consumer price inflation stood in negative territory in May, and it stated that future policy rate shifts should depend on new information concerning inflation and its determinants.”
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Polar Shakeup Follows Credit Shenanigans
Chile’s La Polar has reshuffled its leadership and says it expects to raise loan-loss provisions by up to CLP200bn ($429m) due to unauthorized practices in the management of its credit portfolio. Chile’s Sernac consumer protection authority had initiated legal proceedings last week against La Polar, after receiving complaints of the retailer changing terms of credit agreements without customer consent. “Lending practices came to light that might have been carried out without authorization from the board and in violation of company criteria and parameters,” La Polar says. It has fired its lending manager and hired Eduardo Bizama as CEO beginning July 25, to replace interim CEO Martin Gonzalez, who will return to his previous position of commercial manager. Hernan Arancibia has been named as the new lending manager. La Polar plans an external evaluation of its credit portfolio, including review of its commercial, operational and credit risk procedures and practices, noting that loan-loss provisions may rise by CLP150bn-CLP200bn. La Polar said it plans to disclose a more precise estimate within 3 weeks. It was unclear if La Polar would need to raise new funds to cover the higher provision, or if the problems would affect its $250m 2012-2015 expansion plans. Shares were briefly suspended during trading Thursday, dropping 42.1% to CLP1,352.20 on the day. Fitch downgraded Polar’s ratings to BBB from A minus with a negative ratings watch.
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COPOM Hikes Selic Rate
Brazil’s central bank hiked its Selic rate 25bp to 12.25% last night. The move wise widely anticipated by banks. “The COPOM’s decision to reduce the pace of rate hikes from 50bps to 25bps at its meeting in April and its most recent documents suggest a high probability that the interest rate will be raised by the same magnitude as at the previous meeting,” Credit Suisse wrote before the move was announced.
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Axtel Downgraded by Fitch
Axtel, the Mexican telecommunications company, was downgraded to B+ from BB minus by Fitch. The company’s outlook was also revised to stable from negative. The ratings agency says the downgrade is the result of the company’s increasing leverage and continued negative free cash flow. The agency believes Axtel’s total debt-to-Ebitda ratio will remain close to 3x with free cash flow remaining negative to minimal. Moody’s downgraded the company to B3 with a negative outlook in May.
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Chrysler de Mexico Names New CEO
Chrysler de Mexico has named Fred Diaz as president and CEO. Diaz will continue in his current role as president and CEO of the Ram Truck brand, and will have responsibility for all of LatAm. Previously, Diaz was the head of national sales where he was responsible for sales strategy, dealer relations and operations, order facilitation, incentives and field operations.
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ENRC Hires Brazil CEO
Eurasian Natural Resources Corporation (ENRC) has hired Jose Francisco Martins de Viveiros as CEO of its Brazil operations. De Viveiros will oversee operations and development of ENRC’s iron ore assets in Brazil in addition to 175 employees based in Salvador, Belo Horizonte, Caetite, Aritagua and Salinas. Previously, De Viveiros was CEO at ArcelorMittal Mineracao Serra Azul. He has held several senior management positions within Vale and ArcelorMittal.
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No Change to Peruvian Corporate Credit Ratings
Despite volatility in the capital markets following Ollanta Humala’s victory in Peru’s presidential elections, S&P maintains it will not make immediate changes to the country’s corporate credit ratings or assessment of country risk unless government intervention in concessions results in arbitrary damage to investors’ or creditors’ rights. The ratings agency says it will wait until it gets specifics on the new administration’s proposed course of action and developments in the political arena. While rhetoric during the campaign included elements that could be perceived as negative for credit quality, it was balanced with support for current macroeconomic policies, promoting investments and favoring economic growth, the agency added.
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Humala Win Provokes Sell-Off
Peruvian spreads widened dramatically Monday after leftist presidential candidate Ollanta Humala firmly clinched an election victory over market-favorite Keiko Fujimori. Meanwhile, Peru’s stock exchange experienced its sharpest drop in over 25 years with a 12.5% decline on the day before officials were forced to suspend trading two hours early. The spread on sovereign 5-year CDS reached a wide of 185bp before closing at 165bp, or some 20bp wider against Friday’s levels. It was a similar story on the cash side, with the sovereign’s 2019s dropping 150bp in price terms to end at 118.00-119.00, while its 2037s were weaker by 225bp to finish at 108.25-109.25. Corporates were also hit with Peru’s largest bank BCP watching its 2016s slipping 100bp to 97.50. That said, traders were reporting good two-way flow among big accounts, some of which were seeing this as a buying opportunity after taking neutral positions ahead of the election results. Others, however, were less sanguine and were predicting further spread widening in the days ahead, and indeed headlines that Fujimori had conceded defeat after the close may weigh on the credit further come Tuesday morning. For instance, Brett Rosen, LatAm sovereign debt strategist for Standard Chartered, had been forecasting a spread range on sovereign protection of anywhere between 180bp-200bp on the back of a Humala win.