Category: Brazil

The board of Brazilian grocer Companhia Brasileira de Distribuicao has approved a buyback program of up to 3m shares. The program will be in place for the next 90 days and targets about 3% of CBD’s total float. Shares of the holdco for the Pao de Acucar supermarket chain closed at BRL29.09 Monday. CBD’s chairman was on the tape at the start of the year saying he had cash and is looking to acquire.

Brazilian real estate developer CR2 has approved a program to sell ADRs in New York, it says. One ADR will represent four shares traded in Sao Paulo, and no new shares will be issued at this time. Bank of New York Mellon is the depository bank. CR2 shares closed at BRL3.55 Monday.

A source close to one of the companies that has shown interest in acquiring Brazilian sugarcane grower and ethanol producer Nova America says Banco Fator is advising the possible target. So far, some of the companies that have expressed interest are Cargill, Shell, Noble, Cosan and Sao Martinho, sources knowledgeable of Brazil’s sugarcane and biofuel industry say. An industry banker says Nova America has been looking for an investor to take either a stake or buy the company outright. He believes Cargill would be the most likely buyer. “Nova America is having difficulties and is seeking help,” says the banker. He adds that the industry is in consolidation mode and that many non-LatAm companies are actively looking for assets to buy. “There are about 300 different groups that own companies related to sugar and ethanol in Brazil. There will be more consolidation and this will result in more efficient production and delivery,” he says, adding that there are many companies in financial distress, some in Brazil’s equivalent of Chapter 11 bankruptcy. Neither Fator nor Nova America returned calls requesting comment.

Brazilian poultry and meat producer Sadia is heard to be seeking up to BRL1.5bn in equity capital, according to bankers away from the company. The borrower and financial advisors have apparently turned to the private equity market in search of the funds, according to market talk. After taking a BRL760m derivatives hit in September 2008, the company landed a BRL1.5bn 1-year credit line that will need to be refinanced. Bradesco, which is said by a banker at another institution to have provided the line, is heard to be leading the talks to find an equity partner for Sadia, say executives not involved in the process. A Sao Paulo-based investment banker speculates that the meat company seeks to sell a minority stake, though at Monday’s market cap of BRL2.47bn, a BRL1.50bn injection would represent 60%. As such Sadia will have to find a compromise between paying down debt and avoiding the entrance of a new controlling shareholder. The move demonstrates how debilitating losses such as the ones taken by Sadia, Aracruz and Votorantim can be. Sadia’s share price has fallen 67% since September 1, versus a 29% drop by the Bovespa in the same period. It closed Monday at BRL3.40. The company has been squeezed by crumbling sugar prices and near closure of capital markets, both local and international. It was downgraded to B1 from Ba3 by Moody’s in November due to a significant increase in leverage. Sadia and Bradesco executives were not available for comment Monday.

Lacfin Holdings, a lender owned by Reservoir Capital, has set up a special purpose vehicle to provide financing to sugar and bioenergy companies and exporters in Brazil, Mexico and Central America. The vehicle will have $150m to lend. Of the $150m available to loan, Lacfin has obtained $75m from an IDB loan and the remaining $75m comes from Lacfin’s own resources, the IDB says. An IDB spokesman would not disclose terms of the loan to Lacfin. Rolando Perez, CEO of Lacfin, tells LatinFinance that his company, which has made loans worth more than $1bn since 1995, will offer financing for up to 5 years under this program. He adds that financing terms will be established on a case by case basis.

Australian-Brazilian nickel mining project Mirabela is still a ways from re-emerging with its bid to syndicate a $280m 6.5-year project loan. The deal was launched in September – the same week Lehman filed for bankruptcy – but failed to garner sufficient interest amid market turmoil. It moved to flex both margin and fees following its launch to reflect new market levels for similar projects. The margin for the construction period was elevated to 325bp over Libor, from 250bp at launch, and to 300bp for the post-completion period. Bankers away from the transaction expect another repricing once it resurfaces, but they are concerned by the 6.5-year tenor. Already 5-year facilities have faced considerable resistance from the lending community. People on the loan say they have come up with some potential new levels and adjustments, but that it will require more stability before relaunch. The transaction is part of a $518m financing package that includes subordinated offtaker loans and some developer equity. Barclays and Credit Suisse are leading.

China’s Baosteel has pulled out of a Brazilian steel joint venture with Vale in the state of Espirito Santo. The up to $6bn project was a central part of Vale’s plan to boost domestic demand for iron ore and reduce dependency on Asian ore consumption, says an analyst at Banif Invest in Rio. Baosteel owns over 80% of the venture, called Companhia Siderurgica de Vitoria (CSV), with Vale holding the rest. The project had already run into issues in the second half of last year, with the companies having to relocate part of a steel plate furnace. Falling demand for steel, tight credit markets and an overall need to trim capex all contribute to the decision to pull out of the project, says the Banif analyst. “The global economic crisis, which affected the chain leading steelmakers worldwide to a strong reduction in steel production, as well as a change in scenarios for the CSV project, led Baosteel to propose the cancellation of the project and the liquidation of Companhia Siderurgica Vitoria,” says Vale. Vale shares closed up 2.7% Friday, but in the medium term, the move is seen as a negative, as it reduces the potential pool of domestic buyers for iron ore, and forces it to sell output on challenging overseas markets. State-owned Baosteel is one of the 10 biggest steel producers globally.

Absent from dollar bond markets from 2001 until last summer’s $1bn 2018 deal, Brazilian development bank BNDES hopes to become a more frequent issuer. “All the banks are calling us to see if we are going out again to issue,” Maria Isabel Aboim, BNDES director of finance, tells LatinFinance. “We don’t have anything planned for the very short term. We will see if there are opportunities this year. It will be important not to be away from the markets for so long.” Ideally, she says the bank would issue at least once a year, as demand for its lending has risen to the point where it can not rely almost exclusively on the domestic markets. BNDES lent BRL90bn in 2008, up from BRL65bn in 2007. Aboim says the bank is unsure what demand will be like this year, but early signs point to it remaining as strong as 2008. The Brazilian sovereign last week issued $1bn 5.875% 2019 benchmark bond issue, raising speculation that quasi-sovereigns would follow.

UBS has cut the equity ratings of pulp and paper companies Aracruz and Votorantim Celulose e Papel to sell from neutral, as production cuts are expected to increase costs and BRL depreciation should generate additional FX losses in the fourth quarter of 2008. The shop is bearish on the industry as a whole. “We recommend investors to avoid the sector in 2009 given the poor demand outlook for pulp, excess capacity and expensive valuations,” it says.

Shuttered equity markets and highly stringent bank borrowing creates a host of new opportunity for private equity managers in Brazil, according to Arminio Fraga, founding partner of Gavea Investimentos, the Rio-based asset manager. Gavea has already spent half the $1.2bn it raised for its third PE fund in August 2008 and says the difficult financing environment is convincing controlling shareholders to sell at lower levels. “We are seeing very good opportunities,” says Fraga. “The durable goods sector has been more affected than, say, retail,” he tells LatinFinance, referring to lower valuations because of a lack of available capital. “Our illiquids strategy has grown a lot in the past two and a half years,” Fraga says. He declines to specify when a fourth fund will be raised, but suggests there will be one at some stage. Aside from seeking deals in the private market, Gavea and GP Investments are among the local PE shops who have stepped up their purchase of stakes in public companies as market valuations have come down. One of Gavea’s funds acquired an 11.7% stake in publicly traded retailer Lojas Americanas mid-December. The stake came from a block of shares that had been divested by Sao Paulo-based Mu Hak You, who runs embattled equity manager GWI. This month, GP negotiated a 47.7% stake in publicly listed Invest Tur, in a deal that began with open market purchases and was done in connection with its LA Hotels unit.