Category: Brazil

The IMF has chopped its forecasts for growth in Brazil and Mexico, predicting recession in the latter, amid deterioration in the global outlook. For Brazil, the IMF foresees expansion of 1.8% and 3.5%, respectively in 2009 and 2010, lower by 1.2% and 1.0%, respectively, versus a November prediction. Mexico is set to contract by 0.3% and expand 2.1%, respectively in 2009 and 2010, lower by 1.2% and 1.4%, respectively, versus a November prediction. This compares to 5.8% and 1.8% growth in Brazil and Mexico, respectively, last year, according to the IMF. Both main LatAm economies are predicted to do worse than EM as a whole. The IMF foresees 3.3% growth in 2009, rising to 5.0% in 2010 for emerging and developing economies as a whole. “World growth is projected to fall to 0.5% in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy,” says the fund. “A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged,” it adds, predicting 3.0% expansion next year. “The outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions,” the fund cautions.

LLX Logistica subsidiary LLX Minas-Rio says it has executed definitive financing agreements worth BRL1.3bn with BNDES and other financial institutions. The financing has a total amortization schedule of 12 years and a 2.5-year grace period, says the borrower. The transaction was structured as a project finance with a debt/equity ratio of 73%/27%. The ratio is a relatively favorable one for LLX: In Chile, Marubeni and Antofagasta are seeking debt financing for their own 12-year mining project, but have structured it with a 50% debt to equity ratio. The 50% in the case of this project equals around $1bn. From that total amount of BNDES funds LLX is to receive, 50% will be disbursed as a BNDES direct loan, while the other 50% will be on lending by Unibanco and Itau. Funds will be used to enable iron ore handling from Anglo American mines in Minas Gerais. “This financing is positive news for LLX because it reduces the risks regarding development funds for the LLX Minas-Rio Port,” says Itau. Still, the shop sees the stock underperforming the rest of the market in 2009 since investors may demonstrate higher risk aversion to long-term projects.

Lack of financing puts Brazil’s homebuilders in a bind, according to Fitch, and some private equity bankers say they are beginning to see investment opportunities in the sector. “I expect continued consolidation in the sector. Situations with debt payment and lack of financing will produce investment opportunities,” says a US-based banker whose shop has several investments in Brazil. A Sao Paulo-based banker says he has had some conversations with companies in the sector. “Many of these companies will go through restructuring. Many of them can’t get financing and need to bring in a private equity partner,” he says, adding that companies that publicly-traded companies are on the list. Fitch has responded by downgrading Brazilian homebuilders’ rating and assigning a negative outlook. The affected companies are Cyrela, Even, Gafisa, Trisul and Company. Consolidation of the Brazilian homebuilding sector is a real possibility as the downturn continues, Fitch says. The agency adds that consolidation has already begun. During the second semester of 2008, Gafisa bought Tenda and Company and Brascan merged.

BNDES has agreed to loan BRL392m to biofuels producer Bioenergetica Vale do Paracatu (Bevap). The facility is in 2011, 2015, 2017 and 2019 tranches, according to a BNDES spokeswoman, who declines to detail pricing. Bevap will use proceeds to build a mill in Minas Gerais state with a crushing capacity of 3m metric tons per year, starting operations in 2010. The mill will primarily produce ethanol as well as co-generating 80MW of electricity. The BNDES loan will account for 60% of the total BRL653m investment, with the remainder expected to come from a Banco do Brasil-led syndicated loan.

Brazilian sugar and ethanol producer Acucar Guarani is planning to raise BRL193m-BRL309m through a private share placement. The top end of the range represents the amount raised if the controlling and minority shareholders fully exercise their rights, while BRL193m is the minimum guaranteed by the controlling shareholders. Guarani, whose board still must approve the raise, aims to price the shares at BRL2.00. It intends to offer a premium, citing a Friday closing of BRL2.08, though the shares traded down Monday and closed at BRL2.00. Proceeds will be used to strengthen the capital structure.

Amid plans to significantly boost investment, Brazilian energy behemoth Petrobras is looking to raise at least $6bn in bilateral loans from international banks, say people familiar with the process. The company has in the past several days initiated discussions with lenders to try and raise the sum through as few institutions as possible, though it is heard to have cast a wide net in search of willing participants. Petrobras was heard originally seeking to raise the funds with just three banks, for $2bn each. But the borrower is now apparently entertaining talks for facilities of $500m-$1bn in size. Bankers familiar with the discussions say the borrower is getting proposals of Libor plus 300bp for 2 years and also considering facilities of 18 months. With Libor recently at a 6-year low, the all-in cost of such a facility today would stand at around 4%. Petrobras is heard to have homed in on institutions with large balance sheets and some DCM capabilities. The plan, say bankers, is to term out bond debt coming due in the next 2 years. HSBC, Santander, RBS and Barclays are among those being approached, say people away from those shops. Some syndication executives express discomfort with Petrobras’ strategy of raising funds through simultaneous bilats rather than syndication. The problem is getting a credit committee comfortable signing onto a deal at terms that may end up less favorable than a similarly-sized facility with another institution. Committees would request “most favored nation” clauses, which ensure the same terms as other like facilities if they are more creditor-friendly. But enforcing that on a series of bilats is challenging. Petrobras has historically preferred the leverage it exerts on a lender through bilateral discussion, say bankers. They warn, however, that since markets turned against borrowers, deals must make economic sense to be approved. Petrobras said late Friday it will invest $174.4bn in 2009-2013, including $28.6bn this year, according t

Brazil’s capital markets could see BRL100bn-BRL120bn in total volume this year, according to Brazilian Investment Banks Association’s vp Alberto Kiraly, cited in local media and wire reports. The official expects most operations to be in the second half of the year, with an overall concentration in debt. Last year capital markets activity reached BRL101.90bn, a drop of 31% from 2007, according to Anbid. Debt issues totaled BRL66.97bn last year, down from BRL71.41bn a year earlier, as debenture issues plunged 50% to BRL24.05bn. Primary and secondary equity operations totaled BRL34.88bn in 2008, less than half the BRL75.50bn of 2007, with the number of IPOs plummeting to 4 from 64.