Category: Brazil

Etesco, the Brazilian Petrobras contractor, is heard to be weeks away from wrapping up a $700m debt financing for the construction and operation of a new offshore drilling platform. The company and its co-sponsors, which include Mitsui and Nippon Steel, have locked in some $300m in commitments from ECAs, including Norway’s GIEK and Export Finance. Commercial lenders Bank of Tokyo Mitsubishi, Mizuho, Sumitomo Mitsui and ING are heard to be close to tying up a $400m 9-year facility for the deal, whose terms, including margins, were originally agreed upon in the summer of 2008. The deal, being done on a club basis, is heard to have been promised to the borrower starting at around 200bp-250bp and stepping up from there, presumably another 100bp, say bankers. But at those levels, the transaction would be substantially below today’s market and barely above some banks’ funding costs. One existing reference is AES Gener’s Campiche, a financing with similar a tenor and risk profile that was launched to a limited group this month. Campiche starts at 350bp over Libor and moves up to 450bp in year 10, well above what Etesco was originally offered. But one executive involved in Etesco says he believes that original level will have to be adjusted upwards, a fact that is unlikely please the project’s co-sponsors. The trouble for many contractors is that rising costs of capital are squeezing out the returns forecasted in the financial models they have built for their concessions. Odebrecht, which is looking for $1.3bn in debt financing for its twin platforms, appears to be at odds with its bankers on where to price its facility, say people away from the process. The impact on project’s viability is among its chief concerns, they cite the company as saying. Etesco is targeting an end of March close for its debt financing.

The World Bank has approved two loans for Brazil that together are worth $117.5m. The first loan, for $71.5m, will go to the state of Espirito Santo. The funds will be used to improve water quality and distribution. This loan has a maturity of 30 years and a grace period of three years. The second facility, for $46.0m, will go to the state of Ceara. The funds will be used to promote development by improving urban infrastructure and enhancing regional management capacity. It has a maturity period of 25 years and a grace period of 10 years. Both have interest rates over Libor.

Brazil homebuilder Agra and its investment partner Veromonte appear to have scored a coup in their purchase of a 62% stake in Abyara announced last week. However Morgan Stanley’s special situations fund appears to have posted a loss on the investment. Agra and Veromonte bought the stake from the target’s 3 founding shareholders, which held a combined 40%, and from Morgan Stanley, which had 22%. The latter’s shares were worth close to BRL160m ($100m at the time) in July 2008. Last week’s BRL38m sale price for the combined 62% stake implies Morgan Stanley’s 22% share was sold for BRL13.5m ($5.8m). While the BRL-denominated face value of the stake fell astronomically over the past seven months, this is not reflective of the fund’s overall performance in Brazilian real estate, nor of the loss it posted for the strategy that included the Abyara investment, claims a Morgan Stanley official. He declines to identify the true value of the loss in its Abyara play, citing confidentiality agreements. The special situations vehicle offset its long position in Abyara with other short positions and options on correlated investments, says the executive, who adds that many of the fund’s positions yielded substantial gains. A Morgan Stanley spokeswoman declines to comment. Real estate executives away from the process say either way you cut it, the loss in value on that investment is significant. Morgan Stanley’s investment banking division advised Abyara on the deal while Bradesco BBI advised Agra.

Itau Securities, the research, sales and trading arm of Brazil’s largest bank, has eliminated several prominent executives as part of a round of redundancies. A number of senior research analysts have been cut, say insiders. Among those heard let go are Tomas Awad, head of equity strategy and real estate, Marcelo Brisac, head of natural resources and mining research, and Luciano Campos, in charge of healthcare and education research. In addition, Sergio Tamashiro, who covers utilities, and Ricardo Fernandez, head of consumer, also left. Also heard among the casualties are Alexandre Guedes, head of equity research sales, and New York-based sales and research executive David Lineweaver. The named executives could not be reached for comment or direct confirmation, though a company source confirmed the departures. The losses are related to the markets downturn, as well as the merger with Unibanco.

Marcia Vorona, who until November was in charge of LatAm loan syndications at RBS-ABN AMRO, has resurfaced at Santander. The Brazilian banker has been named executive director in the Spanish bank’s LatAm structured finance group, and will report to Marcelo Castro, head of that group. She will be responsible for origination and structuring, but may also be involved in distribution and syndication. William Donovan, executive director in charge of LatAm syndications remains at his post, and the two are expected to work closely on deals going forward. In moving to Santander, Vorona rejoins several Brazil-based colleagues from her ABN AMRO days, since Santander acquired Banco Real in Brazil. As such, the move is a natural fit for Vorona, who started her banking career at Real in Rio. Santander appears poised for continued strength in LatAm loans, as it navigates the financial crisis with a relatively healthy and sizable balance sheet. A growing DCM platform has helped it parlay balance sheet plays into bond mandates for Petrobras and Pemex this year.

Brazil’s Odebrecht is preparing to launch a hefty project loan to finance the construction and operation of two twin Petrobras drillships. The $1.6bn project will count on some $300m in equity from the sponsor and $1.3bn in debt to be sourced from commercial and ECA lenders, say people close to the process. The commercial portion will be worth from $780m to over $900m, depending on how much ECA debt Odebrecht can raise. Santander, SocGen, RBS and BNP Paribas are leading the commercial portion, which will likely have a 10-year tenor door-to-door, with the first 2 years accounting for the construction period. Odebrecht is heard seeking margins starting at 250bp-300bp over Libor, and stepping up to 375bp-400bp in the final year, say people involved. Loan market bankers away from the deal say that is an ambitious range, and that at the very least, Odebrecht would have to start at 300bp, if not higher. By contrast, Chile’s AES Gener is out with a $445m 10-year loan for its Campiche coal-fired project that starts at 350bp in year 1. Campiche is both smaller and located in a higher-rated country, and also offers juicy fees of 300bp for $50m MLA tickets. That may force Odebrecht to consider pricing well outside its comfort zone, say bankers. Like many highly rated LatAm borrowers, Odebrecht has apparently expressed dismay at the new rates, which lenders say are based on interbank funding at 200bp over Libor, in some cases. Odebrecht is also heard targeting a 12-year ECA portion, and has received interest from Korea’s Kexim and Norway’s GIEK. The transaction is likely to be launched to a club of banks in March, say executives involved. Retail syndication could follow.

UBS Pactual sees positives and negatives in the convertible debt agreement Daycoval has entered into with the IFC, Cartesian Capital and Wolfensohn Capital. The deal is valued at around BRL410m or about 20% of the company’s total value, says IFC’s principal investment officer Xavier Jordan. UBS, which has a neutral rating on the mid-cap Brazilian bank, notes that the deal boosts long term funding and will allow it to grow its loan portfolio for a few years. On the other hand, the shop is concerned about dilution in the longer term. UBS has a BRL7.00 target share price. The stock traded at BRL4.64 February 20. Jordan explains that in a first option, warrants with an exercise price of BRL7.30 can be purchased. He believes that these will likely go unexercised, as the bank’s stock trades at lower levels. A second option, he says, involves the purchase of warrants with an exercise price of BRL7.75, and an exercise period from March 2011-2014. Purchase of warrants in this second option is contingent upon shareholders investing in a 5-year CD issued by Daycoval whose value is initially 77% of the exercise price of each warrant. In the last 3 years that this CD is outstanding, it will earn interest at predetermined percentages of CDI applied to 100% of the exercise price of each warrant. If warrants are not exercised, the CD is repaid at the end of the fifth year at a value equivalent to 100% of the exercise price of each warrant. If exercised, the CD can be converted into shares.

Fitch has downgraded to BBB minus from BBB and withdrawn the credit ratings for Alcoa Aluminio. The cut reflects the increased leverage at the Brazilian unit of US metals producer Alcoa, amid challenging market conditions, the agency says. Fitch points out that debt to Ebitda was 2.6x as of September, compared to 0.8x the year before. Fitch expects future financing requirements at Aluminio to be met by its parent.

Brazil’s Petrobras is negotiating the terms of a $10bn loan with the China Development Bank after signing a memorandum of understanding last week, a company spokeswoman says. The potential jumbo liquidity injection may provide much needed relief to Petrobras, which seeks to invest $174bn in the coming 5 years on new exploration and refining. The company has approached the loan and bond markets, clinching upwards of $5bn in bilateral loans and $1.5bn in 10-year bonds in the past month. A $10bn facility from China would take some pressure off its financing team, which is struggling with skittish bond markets and expensive terms in the bank market. “Petrobras has more [financing] needs than they have market sources, so they’re being creative in terms of their funding sources,” says Anne Milne, corporate debt strategist at Deutsche Bank. She adds Petrobras had probably considered the China option in the past, but decided to go ahead with it when it became clear other liquidity channels were drying up. In the MOU signed with China, Petrobras agreed to sell oil to Sinopec’s China Petrochemical Corp.

Brazilian meat company JBS has given up on plans to acquire US-based National Beef Packing, a deal it had been working on since March. JBS blames the decision on litigation with the US Department of Justice, which had filed a suit to block the transaction in October, citing competition issues. The company also says it will have to pay a $25m break-up fee to National Beef and that it will use cash to cover this. JBS has spent more than $700m on international acquisitions this year, and faces about $1.4bn in maturing debt in 2009. Investors were apparently happy about the deal’s termination, as JBS stocks rose by almost 4% to BRL4.64 February 20. JPMorgan advised the buyer.