Category: Brazil

Fitch has upgraded Company to BB minus (negative outlook) from B+ and its BRL75m in debentures maturing 2012 to A+ from A minus on the local scale. “The upgrade follows the completion of Company’s merger and integration by Brascan Residential Properties,” says Fitch. It placed the ratings of Company and its debentures on positive watch following the announcement of the merger in September. “The negative outlook reflects Fitch’s expectation that homebuilders in Brazil will face a challenging operating environment and financial pressure in 2009 and 2010,” says Fitch. Brookfield Asset Management (BAM) indirectly controls the combined group through intermediate holding companies. BAM is an international manager of assets amounting to around $90bn, including $38bn of real estate assets. Fitch rates BAM BBB+ with a stable outlook.

Brazil’s Cemig has acquired a 49% stake in three wind energy projects from Argentina’s Impsa. The deal is valued at $92.6m and was paid for in cash, according to Dealogic, which adds that HSBC advised the acquirer. Cemig says that the entire output of the electricity to be generated by these wind farms will be sold to Eletrobras. The wind farms in the deal are Praia do Morgado, which is planned to start up this month, Praias de Parajuru, to start up in March and Volta do Rio, to commence in May.

Brazil’s treasury plans to focus on improving the quality of its debt curve above all else, Treasury Secretary Arno Augustin said in a conference call Thursday. “Any overseas issues would be for quality purposes,” Augustin says, noting that there could be more overseas issuance this year aimed at improving the debt profile. He explains Brazil is in a comfortable position regarding some $7.4bn in debt maturing in 2009. Last month, the sovereign sold $1.025bn in 5.875% of 2019 bonds to yield 6.127%.

Speculation is mounting about the future of ArcelorMittal’s Brazil assets as the global steel powerhouse looks to delever. The firm denies it is looking to sell Brazil units, citing their strategic importance. “There is no truth to the rumors that ArcelorMittal is in discussions to divest our Brazilian assets,” says a spokesman. But chatter among M&A experts – which executives say is based more on speculation than it is on concrete discussion – has been picking up lately as sector specialists consider Arcelor’s alternatives in its efforts to deleverage. Among the most discussed Brazilian assets are ArcelorMittal Tubarao (formerly Cia. Siderurgica Tubarao, or CST), which specializes in flat rolled steel, and ArcelorMittal Inox (formerly Acesita), the stainless steel unit. Bankers covering the company appear convinced Arcelor would avoid parting with CST, its crown jewel in the region, and say if any sale were to make sense it would be of Acesita, though finding a local buyer for a stainless steel unit might be a challenge. There is talk on the ground in Brazil that that China’s Baosteel and Vale may be mulling a bid. Private equity firms in Brazil are adding to the noise surrounding a potential sale, as many seek to acquire quality assets from multinationals at depressed valuations, say bankers.

Middle-East-based investors with cash to allocate to LatAm are focused on Brazil, according to market participants. “We have seen in the last couple of years a pick up in the flow, specifically to Brazil,” says Michael Diaz, managing partner at law firm Diaz Reus, speaking of Arab-LatAm investment. The case for Brazil is boosted by size and stability of the economy, demographics, ample fresh water and arable land, abundance of commodities coveted by Mid-East investors, and a direct Emirates flight to Sao Paulo. “Brazil is a country that we were particularly fond of in 2008, and we continue to remain very positive for 2009 and in the long term,” says Jawad Mian, portfolio manager at Rasmala Investments, which manages about $1.2bn. “It’s blessed with resources,” he continues. Rasmala is overweight LatAm versus other EM, though negative on Mexico and worried generally about regional FX risk. ADIA, ADIC, Bin Zayed Group, Emirates Capital and Dubai Ventures Group are also among potential Arab investors in Brazil. Other large Gulf players are only just starting to assess LatAm. “We’re gradually working our way down to Latin America,” says Felix Herlihy, CIO at Istithmar World, which invests in industrial, consumer and financial services sectors. He adds that Istithmar – the investment arm of Dubai World – has historically had very little exposure to LatAm, but recently opened a New York office to overcome distance and time difference barriers. Herlihy also notes that LatAm valuations are “reasonably attractive,” and that his firm is putting more resources into assessing the opportunity. “LatAm from an investor perspective has become a lot more stable,” says Alejandro Berney, director of securities and fund services at Citi. “You will probably find very good values just because there is capital lacking in the region,” he adds. They were speaking at the Latin America Mid-East Investors Forum, a LatinFinance event held in Dubai this week.

Colombian power generator ISA is considering tapping the cross border bond market in the latter half of the year to finance its many projects in Brazil, Colombia and Peru, CFO Camilo Barco tells LatinFinance. Any deal would depend on an appropriate financing window, he adds. One option under consideration is issuing a 3-tranche cross border bond, possibly in the $500m area or larger. Proceeds from each tranche would go to ISA’s units in Brazil (CTEEP), Colombia and Peru. It is seeking tenors as long as 10 years, though depending on market conditions, it could settle for 7 or even 5 years, says Barco. For CTEEP alone, Barco sees potential financing for the equivalent of up to BRL500m. CTEEP has been an active issuer in the local Brazilian bond market, but has yet to issue a standalone cross-border bond. As a utility with major power projects of national importance, CTEEP has historically been a big user of BNDES funds. Some BRL300m has already been approved for the coming year with more to come still, says the CFO. Local market funding, especially in Peru, is also an attractive option, notes Barco. “In Peru you can issue an 8-year note at very competitive rates,” he notes, without detailing the expected all in cost of such an issue. ISA’s Peru unit has been active in the local markets in the past, he adds. In December, ISA reopened its 2026 local Colombian notes for COP104.5bn ($46m) at an all in rate of IPC plus 7.1% via Citi, Correval and Bancolombia.

The Federal Reserve says it is extending its liquidity programs to four EM countries, including Brazil and Mexico, by six months through October in light of the continuing strains in many financial markets. The program supports the provision of USD liquidity in amounts of up to $30bn each, according to the Fed. “The big news would have been if the program was ended,” says Rodrigo Valdes, chief LatAm economist for Barclays. “This just means we’re not out of the woods in terms of the global financial condition,” he adds. The Fed is providing similar lines to other central banks, including the ECB and ones in Australia, New Zealand, Denmark, the UK, and Switzerland.

Economists expect Brazil’s central bank to cut the Selic rate, which stands at 12.75%, in March, and continue doing so throughout the middle of the year. Barclays and Morgan Stanley expect a 100bp cut in March. The bank made a 100bp cut in its last meeting, held in late January. Barclays says Brazil faces a sharp drop in industrial production, several investment projects that have been cancelled, an increase in unemployment and, consequently, weaker consumption. The shop says it expects the Selic to drop to 10.25% by mid-year with risks to a sharper cut. Morgan Stanley, meanwhile, sees the Selic dropping to 9.75% by mid-year. Local Selic futures in Brazil point to a reduction to 10.5% by the end of 2009. Morgan Stanley maintains its expectation for zero GDP expansion in Brazil this year.

UBS Pactual, the Brazil investment banking and asset management unit of UBS, may escape a new bonus policy that says most director-level executives will receive their entire 2008 bonus in deferred compensation, with no cash. The measure, which doesn’t apply to MDs and EDs with contractual guarantees, has not been officially announced, though senior UBS officials hinted at the decision last week. Details on the policy, including what exactly constitutes deferred compensation, are to be announced February 10. Brazil executives, however, claim their unit has its own bonus pool, and both senior and junior level bankers and asset management executives are expected to share in that pool and receive cash, in addition to the deferred component. News of the zero cash policy last week caused outrage within the senior ranks at UBS, say people close to the firm. A UBS spokesman declines to comment on Brazil bonus expectations, noting the firm doesn’t break out bonuses by region.

Brazilian steelmaker CSN has approved a buyback program of up to 9.72m shares. The amount represents about 2.2% of its 444.5m shares outstanding. The program runs through February 25. CSN shares closed Monday at BRL35.20.