Category: Equity

Votorantim Celulose e Papel (VCP) has laid out plans to consolidate its holding in Aracruz. The acquisition will be done through an auction on the Bovespa on July 1, with Santander managing the process. VCP will acquire 255m ordinary shares formerly belonging to the Lorentzen and Safra families. In order to do this, all of the Aracruz shares are being converted into ordinary shares, with preferred shares being swapped at a rate of 0.91 preferred shares per ordinary shares. VCP will pay the selling holders for the shares in 6 installments running through July 2011, according to the statement. The move will cost VCP some BRL2.7bn.

Brazilian derivatives trading growth has been set back years by the global financial crisis, BM&FBovespa CFO Carlos Kawall tells LatinFinance. “What we were expecting to happen this year [in terms of volume growth] may now take another 2-3 years,” says Kawall. He declines to provide old or updated year-end projections for derivatives trade, which is predominantly in rates and FX futures. Prior to Lehman’s collapse in September, the BM&F was gearing up for a major surge in turnover driven by a linkup with the CME and its global network of trading terminals. Nonetheless, a recent revival in global appetite for risk has benefitted Brazil, and volumes are rebounding. The trend is supported by the fact that BM&FBovespa has mostly finished integrating with the CME’s derivatives platform. The Brazil exchange commemorated May 19 a new record of 42,100 daily trades routed through the CME-BM&F integrated service. That included 32,259 direct market access (DMA) trades, says the exchange. Most DMA volume is derived from 3 US-based algorithmic trading shops, says Kawall, without naming them. In addition, US and European algorithmic traders are preparing to install their own proprietary servers at the BM&FBovespa in coming months, he adds. This would enable them to execute large volumes of derivatives trades at substantially higher speed. Co-location, a variant on DMA, has been authorized by the BM&FBovespa to start June 15. The move should further boost volume, say experts, who see foreign shops setting up program-run strategies to carve inefficiencies out of the Brazil market, which has seen little algorithmic business. Less than 1% of BM&FBovespa turnover is algorithmic, whereas at CME or Deutsche Bourse, it is around 30%-40%, says Kawall. By far the most popular Brazil contract is USD-BRL futures, he adds. Among the large US quants using CME are Citadel, Newedge, Tudor, Drawbridge Global, Susquehanna, Wolverine and Moore Capital.

Credit Suisse has raised its target for the Bovespa at year end and trimmed Mexican equity. Its Ibovespa index estimate increased to 55,000 from 49,000, versus 51,346 Tuesday. “This change is a result of improved conditions in credit markets (albeit still far from normal levels) and increased risk appetite across the markets,” says the shop. “In a more benign scenario, with both country risks down another 100bp, we would arrive at a fair value for the Ibovespa of 62,800,” it adds. Citi recently put Brazil equity on overweight and boosted its year-end Bovespa call to 60,000 from 55,000. Improving global macro data, lower risk of significant contraction in 2009 GDP, and a bullish outlook for rates and the BRL are among positive drivers, says Citi. Meanwhile in Mexico, Credit Suisse chopped its year end forecast to 25,000 from 25,600 due to worsening economic.

Brazilian credit card company VisaNet has filed a long-awaited initial prospectus for its IPO. The deal could be one of the biggest Brazil equity offerings ever, according to bankers working on it. They say the offering could weigh in at $2.4bn-$4.5bn. Bradesco BBI is the lead bookrunner, joined by BB Investimentos, Santander and JPMorgan on the top tier. Goldman Sachs and UBS Pactual are also joint bookrunners, according to the prospectus, which does not include share price or total amount to be raised. VisaNet posted gross revenues of BRL882m in Q1, compared to BRL740m in the same period in 2008. A deal is expected next month.

Citing a convergence of positive trends and data, Citi has put Brazil equity on overweight and boosted its year-end Bovespa call to 60,000 from 55,000. Bovespa closed Friday at 51,395 and has been on an upwards trajectory for weeks. Improving global macro data, lower risk of significant contraction in 2009 GDP, and a bullish outlook for rates and the BRL are among positive drivers, says Citi. The shop says it is focusing on names like Ambev, Cosan, Redecard, TAM, Itau Unibanco, Vale, Usiminas, Ultrapar and Net. Among sectors it overweights are materials and technology. Citi maintains an underweight rating on Mexico, as it continues to see equity in that country as overbought short term, and expects economic data to worsen. Citi also upgraded Peru to overweight from underweight, based on the fact that the country’s 17% equity index lags the region’s 29.2% surge so far this quarter. In April, Peru was the worst EM performer in the MSCI GEM index, says Citi.

Brazilian credit card provider VisaNet is close to filing its second attempt at an IPO, and market participants believe this time it will fly. The offering, tentatively slated for June, could raise BRL5bn-BRL7bn depending on investor appetite, says a banker familiar with the process. Exact details on pricing and timing are still a way off, and a CVM filing is pending. VisaNet is controlled by Bradesco (39%), Banco do Brasil (32%), Santander via Banco Real (32%) and Visa International (10%). All 3 banks will be bookrunners, with 2 spearheading the effort as global coordinators, says a banker on the deal. JPMorgan also joins the lead group, as a Visa relationship bank. Goldman Sachs and UBS Pactual, which was bought recently by BTG, are also rumored to be joining the lineup of bookrunners, though without a global coordinator title. The line up remains to be finalized. VisaNet filed an IPO in September – with all of the same banks, excluding UBS Pactual – but passed on a deal as markets tanked. In general, equity investors are looking for a large and liquid name. Like Redecard, VisaNet has the scale to deliver that. “Ideal candidates for an IPO are those that are large, with strong revenues and a liquid free float,” says Rogerio Poppe, equities portfolio manager at BNY Mellon Arx. He adds that issuance size needs to exceed BRL1bn per deal to be palatable for investors. Poppe thinks VisaNet is among companies that can place shares even when markets are unwelcoming. Rio-based BNY Mellon Arx manages over BRL5bn.

After the swine flu outbreak caused Mexico’s IPC index to tumble 4% Monday, the markets appear to have found support. Tuesday’s session saw the bolsa decline 0.8% to close at 21,662.53, while MXP depreciation was also contained. The currency weakened 4.0% Monday, but Tuesday’s session saw it slide just 0.8% to end at MXP13.87 to the dollar. “We expect increased volatility in the short term for Mexican assets on the back of the swine flu, especially for the peso, but we do not expect anything along the lines of a free-fall in the Mexican peso,” says Bulltick. Fed lines, an IMF FCL and central bank CB commitment to a stable peso will keep it from depreciating back to MXP15, the shop adds. “If the epidemic is only temporary, investors can expect spreads to tighten back in and the peso to return to MXP13.3/USD in the short-term and MXP12.50/USD by the end of the year,” says Bulltick.

Arminio Fraga, a founding partner of Gavea Investimentos, has been elected chairman of BM&F-Bovespa’s board of directors, the exchange says. He replaces Gilberto Mifano, who held the post since May 2008, following the merger of the two exchanges in March of the same year. Fraga will not leave Gavea and remains fully committed to his role in running the Rio-based asset manager. “I’ve left other board positions at companies and NGOs to focus more on this role,” Fraga tells LatinFinance. Fraga, who will be an independent board member at the BM&F, has held board positions at other companies such as Unibanco, Bunge and JPMorgan. The former central banker says he chose the BM&F partly because it provides an opportunity to do an important public service. “It’s important [for Brazil] to have a strong exchange that fulfills its role in developing the capital markets,” he says. Gavea is heard to have recently sold its stake in the exchange because of Fraga’s move. The new BM&F-Bovespa board has 11 members. Fraga has a 2-year mandate, which can be extended for another 2 years. The other directors elected to the board are: Candido Bracher, Claudio Luiz da Silva Haddad, Craig Steven Donohue, Fabio de Oliveira Barbosa, Jose Roberto Mendonça de Barros, Julio de Siqueira Carvalho de Araujo, Luiz Stuhlberger, Marcelo Fernandez Trindade, Renato Diniz Junqueira and Rene Marc Kern.

The swine flu has hammered Mexican markets on the first full day of trading since the severity of the outbreak rose dramatically over the weekend. The Bolsa’s IPC dropped 3.3% on Monday to 21,827.11, while the MXP slid 4.0% to MXP13.76 per dollar. Research shops say it is still too early to quantify the potential economic consequences of the potential pandemic, though any sense of stability achieved by the early April announcement of an FCL arrangement with IMF has been undeniably toppled. If the outbreak results in a temporary, one-off event causing 2-3 weeks of disruption “investors can expect spreads to tighten back in and the MXP to return to MXP13.3 per dollar in the short-term, and MXP12.50 per dollar by the end of the year,” says Bulltick Capital in a Monday note. If the outbreak turns into a pandemic, Mexico’s economy would be severely affected as consumers cut spending and tourists cancel their vacations, it adds.

While the equity new issue market has been firmly shut for IPOs, TGI, the Colombian gas transportation company, is still working hard to be ready to issue once they reopen, according to its CFO. “We still plan on capitalizing TGI,” says Jorge Pinzon Barragan, CFO, tells LatinFinance. “We may put an RFP out by the end of the first half,” he adds, noting no banks have been selected even on a preliminary basis for advisory and underwriting. One of the big challenges for TGI, which is controlled by EEB, has been moving its accounting over to IFRS. In September 2007 TGI issued $750m in 10-year bonds that priced at par to yield 9.50%. Its parent EEB followed a month later with a $610m 2014 NC4 note 8.75%. Both deals came via ABN AMRO, now RBS. Pinzon says TGI’s debt to equity ratio stands at 1.5x.