Category: Brazil

As expected, Brazil’s central bank has kept its monetary policy rate on hold at 8.75%, but may begin tightening soon. “We believe that . . . Copom is preparing the markets for a tightening cycle in April,” says Goldman Sachs. The shop adds that Copom will raise the rate by 375bp to 12.50% this year. “The first hike would amount to 50bp in April, followed by 3 increases of 75bp per meeting, concluding with two final hikes of 50bp per meeting,” says Goldman. Bulltick meanwhile believes Brazil may tighten 150bp by the end of the year, starting in Q2. Standard Chartered sees a first hike of 50bp in March.

Brazilian water utility Sabesp says its board has authorized a BRL900m non-convertible debenture issue in 2 tranches, one due in 2015 and the other in 2013. A BRL600m 2015 tranche will pay 3.50% over DI and a BRL300m 2013 tranche 2.25% over DI. Proceeds will be used to finance short-term debt, the company says.

Brazil’s central bank is expected to keep its monetary policy rate on hold at 8.75% today. Morgan Stanley says that it is likely to hike this year, but is not in a rush. “Shrinking slack in the economy and rising inflation expectations can eventually force the hand on the monetary authorities,” it says. “However, the bank is likely to wait for a few more months to assess where growth settles after the initial rebound from recession,” it adds. Bulltick meanwhile believes Brazil may tighten 150bp by the end of the year starting in Q2. Standard Chartered predicts a first rate increase of 50bp in March. And Goldman expects Copom to wait until April to initiate the tightening cycle, though it sees a risk of moving in the month before. A central bank survey shows consensus estimates are for the rate to reach 11.25% by year-end.

Brazilian fridge and freezer maker Metalfrio has filed an official statement withdrawing its plans to issue shares in a follow-on of 31m shares that would have raised it BRL341m at Tuesday’s closing price of BRL11.01. The deal was slated to include 17m primary shares and 14m secondary shares. Credit Suisse, Itau BBA and Morgan Stanley have the leads for the pulled deal. In a statement with the CVM, says it will remain focused on developing further synergies from earlier investments, keep an eye out for market opportunities and cash management, obtain new clients and grow its business. It does not suggest an M&A deal is in the works.

Eletrobras is evaluating its funding options following the unveiling of a plan to pay BRL10.3bn in long overdue dividends. “Eletrobras will execute its funding program of $2.0bn for 2010 by tapping either the bond market, loan syndicated market and/or multilateral agencies,” a finance official at the company says. “We expect that shortly we will be reaching a decision to which alternatives to pursue,” he adds. LatAm DCM bankers expect an RFP for a new bond as soon as February. The state-controlled utility sold $1bn in 6.875% of 2019 bonds in July through Credit Suisse on the back of $6bn in orders. That deal – Eletrobras’ first in 4 years – followed a long selection process in which the issuer was said to have awarded the job solely on lowest fees, pushing the commission into single digits.

Brazil has agreed to purchase up to $10bn in SDR-denominated IMF notes over a period of two years. This comes after G20 leaders and the International Monetary and Financial Committee in April requested an increase in funds for the IMF. The notes will be acquired in multiples of SDR10m and the price will be par, the IMF says. The fund last July approved a framework for the issuance of notes to member countries, including Brazil. The notes have a maximum maturity of 5 years and interest payments will be made quarterly. Once purchased by member governments, the notes would be tradable within the official sector, which includes all IMF members, their central banks, and 15 multilateral institutions. China plans to invest up to $50bn in the IMF paper, and Russia up to $10bn.

Brazil’s General Shopping is structuring a BRL60m ABS fund that will be distributed to local investors in what is the company’s first non-private securitization deal. “The market has improved [in the past several months] and there’s better receptivity among investors for these deals,” says an IR official at the company. He notes that pricing for a more broadly distributed offering is better for the issuer than doing a private placement nowadays. The 10-year deal is backed by future rent flows General Shopping receives from its mall tenants. The company will transfer the rights to a fund that is being structured by RB Capital, formerly part of Rio Bravo Investimentos’ securitization team. The fund will likely take the form of a CRI fund. Pricing and exact structure are still being worked on, says the official.

Despite the selloff that has seen the Ibovespa sink 5.2% in the past 4 sessions, equity investors have started 2010 with a favorable, albeit cautious, view on Brazil. Three US-based portfolio managers say they are overweight stocks in the biggest LatAm economy, having either maintained or increased allocation. However, appetite is uncertain for the 3 deals slated to price in the coming 7 sessions, including an IPO. “It’s going to be company-specific, and whatever I buy will have to be better than what I’m holding now,” says Todd McClone, who oversees $6bn LatAm equity for William Blair & Co. A concern for McClone is the abundance of paper coming from certain sectors, including homebuilding. Follow-ons scheduled include Inpar and PDG Realty, both specializing in homebuilding. The IPO is for Aliansce Shopping, the mall operator that kicks off the season with an up to BRL1bn deal Wednesday via Itau BBA and BTG Pactual. March 2, TAM miles program Multiplus is scheduled to price an IPO worth over BRL1bn. Will Landers, who manages over $7bn in LatAm equities at BlackRock, says his preference is for a minimum deal size of $300m-$500m. He also likes sectors that are under-represented in the Bovespa, including those with businesses tied to infrastructure or that can benefit from growth expected from the Olympics and World Cup. Foodmaker M. Dias Branco pulled a small offering scheduled for February 4, while Metalfrio, which was set to bring a similarly-sized deal, is also heard mulling withdrawal.

After much speculation and anticipation by investors, Eletrobras has arrived at plan to distribute accumulated overdue dividends between 1979 and 1998. The total sum, to be paid out in 4 installments, is BRL10.3bn. Nearly all of it is owed to holders of ordinary shares. Holders of Eletrobras stock as of January 29 will be entitled to receive their share of dividends. Ordinary shares of Eletrobras rose 10.9% to BRL4.15 Friday on the news. Bloomberg reports that the company will sell up to $4bn in bonds to fund investment and hedge dollar debt, citing CEO Jose Muniz.