Category: Brazil

Brazil’s cabinet chief Dilma Rousseff was nominated Saturday as the Workers’ Party presidential candidate, as expected. Her popularity is rising in the polls, and Eurasia Group expects her to win against likely main rival Jose Serra. Investors appear to assume her victory will result in policy continuity with Lula. However, analysts including Eurasia say that the precise macro, monetary and industrial policy is in play, and investors should be cautious. The first round of elections is set to be held in October.

Brazil will be a major investment destination for global investors over the next decade, Ashmore Investment Management says in a note, with the country benefitting from a rebalancing in the global economy. The shop, which manages over $30bn in mostly EM and has large positions in LatAm and Brazil, expects continued increases in allocation to asset classes outside money markets, particularly into the equity market, which more and more of the country’s companies have been turning to for funds. “We’re also seeing strong opportunities in the fixed income market with high rates and a steep curve plus the likelihood of currency appreciation due to strong foreign direct investment and portfolio investments over the next 10 years. Money will follow growth,” says Ashmore Brasil CEO Eduardo Lopes. “As this new reality of global risks changes, so asset allocators are starting to realize they are massively underweight Brazil and other emerging markets,” chimes in Jerome Booth, Ashmore’s head of research, noting that the US and Europe are no longer the safe havens they were thought to be.

Odebrecht’s ETH Bioenergia unit and competitor Brenco have finalized plans to merge under the name ETH, the two say, in order to better compete in the Brazilian sugar and ethanol sector. The two will invest BRL7.3bn through 2012, as they push to take market share from leader Cosan. In the deal, Brenco’s assets will be absorbed into ETH’s, resulting in a structure where ETH shareholders control 65% of the new ETH, and Brenco’s 35%. ETH aims to produce 3bn liters of ethanol and generate 2,700 Gwh of biomasse energy per year by 2012. The new entity will feature a 10 member board, with 7 from the ETH ownership block of Odebrect and Japan’s Sojitz Corporation. Brenco is owned by investors led by venture capitalist Vinod Khosla and AOL founder Steve Case.

Brazilian industrial group Schahin is looking to make a grand entrance into the cross border capital markets with a $300m 7-year secured bond. The deal has gotten preliminary investment grade ratings from Fitch and Moody’s, Fernando Schahin, CFO of the group, tells LatinFinance. Nomura, the main bank hired to structure and place the bond, will look to price off the Petrobras yield curve, adds the Brazilian executive. Target investors include insurance companies, financial institutions and other investment grade buyers. Proceeds of the upcoming new issue, which will likely launch later this month or in early March, will help fund Schahin’s equity contribution to an upcoming $1.6 billion 10-year concession with Petrobras to be operated by Schahin’s Black Diamond drillship. Grupo Schahin, whose dealings with the cross border markets have mainly involved raising sizable project loans to finance an offshore drilling unit, says it wants to open a new funding base. “We want to diversify our sources of capital to sustain our growth,” Schahin says. “To do this we are putting our best asset to work,” he adds. “We want to make a statement, here, and have a good deal out in the capital markets.” The asset referred to is Schahin’s Lancer platform, one of the longest-running Petrobras contractor ships. While the ship’s hull was originally built in 1977, the rest of the rig has been regularly modernized and boasts state-of-the-art technology, claims Schahin. It has one of the longest performance records in the industry, no construction risk and its client Petrobras provides a strong contract risk-mitigator. As such, Lancer passes critical tests faced by platforms seeking financing. A newly signed 7-year contract with the state-owned oil company, which includes a day rate of $300,000, provides a strong candidate for a debut debt issue, adds the executive.

OHL Brasil units Centrovias, Autovias, Intervias, Rodovias and Vianorte are planning to issue up to BRL1.1bn in debentures. Centrovias wants to issue BRL350m, Autovias BRL300m, Intervias and Rodovias BRL250m each and Vianorte plans to sell BRL200m. Itau is managing the issues.

Moody’s has assigned a Ba2 rating to Invepar’s 10-year BRL450m amortizing local unsecured debentures that are guaranteed by the Brazilian infrastructure company’s subsidiary Linha Amarela (LA). The outlook is stable. The rating action reflects LA’s stable and predictable cash flow of the guarantor, which is supported by a long-term concession contract for toll road services. LA, says Moody’s, also has strong credit metrics for the rating category and a relatively long track record of improving operating performance since 1998. Proceeds of the issue will be used to capitalize Concessao Metroviaria do Rio de Janeiro, its Rio subway subsidiary through the acquisition of 10-year bullet payment debentures to be issued by Metro Rio. The latter will primarily use the proceeds of these private debentures to amortize existing short-term debt estimated at around BRL170m and fund the acquisition of new train cars of around BRL280m.

Banco Cruzeiro do Sul has raised $250m in new 2015 bonds, fitting the issue in before the Brazilian Carnival holiday amid continued volatility in the global markets. The Ba2 offering priced at 99.007 with a 8.500% coupon to yield 8.750%, in line with 8.750% area guidance. Bankers on the deal spot the demand at about $280m from more than 100 accounts. BCP and BTG Pactual managed the 144a/Reg S sale, marking a debut for the latter in this market. Cruzeiro sold $175m in 2012 bonds in September to yield 8.5%, also through BCP. A general decline in risk appetite has not deterred some Brazilian banks from issuing, with Banco Votorantim pulling off a $500m 3-year deal earlier this month. However, larger expected issuers heard wanting 10-years, such as Bradesco and Itau, appear to be waiting.

Brazilian steel and mining operator CSN has raised its bid for shares of Cimpor to EUR6.18 per share from EUR5.75, bringing the valuation for the target’s 672m share to EUR4.15bn. CSN also lowered its minimum acceptance target 33% plus 1 share, from 50% plus 1 share, conceding it is now impossible to acquire a controlling stake since Votorantim and Camargo Correa have accumulated stakes and agreements that give them a combined 52% of Cimpor. Separately, Portugal’s Diario Economico newspaper reports Monday that CSN in talks to buy a 20% stake from minority shareholders Manuel Fino and the pension fund of Portuguese bank Banco Comercial Portugues, which each hold 10% of Cimpor. Last week, Camargo acquired a 6.5% stake in Cimpor belonging to Bipadosa, which, added to the 22.2% stake it had acquired from Teixeira Duarte, brings its holdings to 28.7%. Votorantim has accumulated a 17% stake through a share swap with Lafarge and formed a bloc with Caixa Geral de Depositos, which owns 10%. If CSN succeeds in acquiring close to a third of Cimpor, three competing Brazilian companies will have roughly equal holdings, with none carrying enough influence to single-handedly effect a change at Cimpor. Brazil’s antitrust agency is also reported to be preparing an investigation into Camargo’s and Voto’s participation in Cimpor, which may have cartel implications for Brazil’s cement industry.

Fitch has downgraded the ratings of Brazilian industrial conglomerate Camargo Correa to BB minus from BB after the company announced it had purchased a 22% share in Cimpor for EUR961m. The outlook was revised to stable from negative. “The downgrade reflects the leveraging effect this transaction will have on Camargo’s credit protection measures, which were already weak for the rating category on a net debt basis,” Fitch says. Camargo’s net debt is expected to increase to BRL10.1bn from BRL 7.7.bn on a pro forma basis. Its pro forma net leverage ratio would climb to 3.5x from 2.7x. However, Fitch says the deal allows Camargo to increase its presence in global cement, and it should result in synergies with Camargo’s highly correlated core cement, engineering and construction businesses.

Camargo Correa is acquiring 22%-25% position in Cimpor, driving Brazil Inc’s pursuit of the Portuguese cement company into an awkward stalemate. Camargo bought a 22% share in Cimpor that belonged to Portuguese engineering firm Teixeira Duarte for EUR6.50 a share, valuing the deal at EUR961m. Moody’s says Camargo will partially fund this with long-term debt rather than cash. The cement specialist says it has purchased the option to acquire an additional 3% from third parties, making it the single largest entity to own a piece of Cimpor. The race is on to secure remaining smaller pieces of the company held by minority investors, say people close to the process. The next largest holder is Votorantim, which last week secured a 17% stake in Cimpor through a share swap. It also formed a shareholder agreement with Caixa Geral de Depositos, which owns 10%, turning the pair into a single bloc with 27%. “There are still remaining stakes [to go after,]” says an executive close to Camargo. “This soap opera isn’t over yet,” he adds. Among minority shareholders in Cimpor are Manuel Fino (11%), BCP’s pension fund (10%), Bipadosa (7%), Cinvest (4%) and the public (19%), according to Cimpor. The lunges from Voto and Camargo effectively shatter CSN’s bid to acquire a controlling stake in Cimpor, which is being done through a public tender that expires February 17. CSN seeks a controlling stake and up to 100% of the company. Its EUR5.75 a share offer via a cash bid has been rejected by Cimpor’s board, but could still draw interest from would-be sellers, estimate some analysts. If CSN acquires all of the stakes that have not been consumed by its compatriots Voto and Camargo, it could get 48%, though that seems unlikely at this point, given the offer is well below what Camargo paid. If it did, however, it would jointly own the company alongside the 2 Brazilians it is trying to steal market share from. Elsewhere, CSN has gone to Brazil’s antitrust regulator to file a complaint about the