Category: Brazil

Brascan Residential Properties plans to raise BRL200m in a share sale to existing holders, it says. The developer controlled by Canada’s Brookfield Asset Management is set to offer 100m new ordinary shares at BRL2.00 each during a 30-day subscription period launching today. Brookfield, which owns 58.5% of the publicly-traded shares, will subscribe its proportional amount, Brascan says. Through Brascan Brasil, it will buy all of the remaining shares at the close of the offer period. “The real estate market continues to offer opportunities, but the current international crisis has reduced financing tenors, which is not compatible with the company’s strategy of having long-term financing,” CEO Nicholas Reade says in a statement. Brascan did not indicate how it intends to use proceeds.

Brazil plans to support corporate borrowers facing debt rollover problems with a new credit line, says Central Bank president Henrique Meirelles. Meirelles expects some 4,000 Brazilian companies to need around $20bn from the special credit line, set to launch at the end of this month. The bank will tap its reserves for the loans, available to any domestic firms with foreign debt maturing until the end of 2009. Meirelles declines to opine when asked about rates and GDP growth, but says he expects Brazil to see “a deceleration on a smaller scale,” than the global average, owed mainly to strong domestic demand. He was speaking at a Brazilian Chamber of Commerce event in New York.

Bradespar has started the sale of BRL610m in 36-month debentures and BRL690m in 180-day promissory notes. The debenture issue is the first Brazilian local market issue with a tenor of more than one year since the liquidity crunch and surprises with what market participants say is an exceptionally high 125% of the DI rate. The interest rate – 125% of DI – marks a high point for investors, with higher yield issues in the latter part of 2008 reaching 110%-115%. The shorter-dated promissory notes, which even the biggest Brazilian borrowers have been relying on since September, pay 110%. Bradesco and UBS are managing both sales. Demand for the deal has apparently surpassed BRL6bn, according to a report from newspaper Valor Economico, which cites market sources. The debentures are rated AA on a national scale. The equity arm of Banco Bradesco is refinancing most of the BRL1.4bn in that it borrowed last year to finance the purchase of a stake in miner Vale. Bradespar owns 5.6% of Vale through its participation in the Valepar investor group. October saw the last term issue from this market, a placement by water utility Sabesp of BRL220m in 2013 and 2015 notes.

The board of Brazilian mid-sized bank Banco Pine has authorized the repurchase of up to 2.07m additional shares. In October, the bank approved the repurchase of up to 1.2m units through July 2010. Credit Suisse is managing the program. Pine has a 21.67m shares outstanding. They closed at BRL5.15 Tuesday.

Banco Sofisa has approved a 1-year share buyback program. The mid-sized Brazilian bank is targeting up to 3.4m of its shares, about 10% of its 34m share float. It closed Monday at BRL4.38 per unit.

Telemar Norte Leste has closed the purchase of 61% of Brasil Telecom for BRL5.37bn, marking the end of a long regulatory process after the deal was agreed in April. The amount includes BRL5.86bn it agreed to pay, plus adjustments for interest and the assumption of BRL998m in debt from BT parent Invitel. Telemar, which operates under the Oi brand, bought BRL81m voting shares for BRL77.04 per unit including debt assumption, and must now make a tag-along offer to minority shareholders. It now has a stronger platform for competing with foreign fixed-line and wireless players in Brazil’s market such as TIM, Telefonica, and America Movil, and it says it plans to invest BRL30bn to double the number of subscribers and make acquisitions abroad. The companies received preliminary approval from Brazil’s telecommunications regulator last month. Fitch lowered BT’s debt rating to BBB minus from BBB to match that of Telemar and account for expected increased indebtedness. Telemar has used BRL5.6bn in promissory notes and BRL4.3bn in bank loans to fund the purchase.

LatAm currencies are expected to continue sliding this year as the financial crisis worsens. “[In Brazil] we foresee a weaker currency going ahead, amid tougher global market conditions. Our forecast assumes a gradual currency weakening path through 2009,” says Morgan Stanley’s Marcelo Carvalho. Morgan Stanley expects the real to drop to BRL2.70 per dollar from BRL2.26 January 9 and Goldman Sachs forecasts the BRL will end 2009 at BRL2.45 and BRL2.40 in 2010. HSBC strategist Clyde Wardle says that the COP “rallied 15% in 3Q 2008, but considering Colombia’s sensitivity to lower oil prices and demand from the US, we believe that the currency still faces vulnerabilities.” He forecasts the currency will drop to COP2,550 per dollar from COP2,224 January 9. Other major LatAm currencies are also expected to weaken as a result of the ongoing financial crisis, although analysts do not necessarily agree on how much. While HSBC expects ARP to hit 4.14 per dollar by the end of 2009, Morgan Stanley sees it at ARP4.50. The currency traded at ARP3.45 per dollar on January 9. CLP, which has been weakened by the drop in copper, will fall to CLP640 per dollar according to Morgan Stanley, but HSBC says it will weaken even more to CLP700 from CLP616 January 9. The MXP, says HSBC, will fall to MXP13.75, but Morgan Stanley sees it strengthening to MXP12.80. It stood at MXP13.63 on January 9, but in 2007 averaged MXP10.91. The PES will also see further depreciation, although Peru is projected to be the fastest growing country in LatAm this year. While Morgan Stanley forecasts a value of PES3.45 per dollar, HSBC sees it at PES3.21. The PES was valued at PES3.16 January 9. Meanwhile, Merrill Lynch is more bullish on LatAm currencies and sees them strengthening by the end of 2009 compared to January 9.

Banco do Brasil has agreed to buy a near 50% stake in Banco Votorantim for BRL4.2bn, significantly less than originally expected. The combined entity will have BRL553.3bn in assets, BRL275.7bn in deposits and a credit portfolio of BRL232.8bn, the acquirer says. The state-controlled bank is purchasing 33bn Votorantim voting shares for BRL3bn and taking 7.4bn new preferred shares for BRL1.2bn, in a deal that had been rumored since last fall. BdB had been rumored last year to be pursuing a 49% stake in Voto for an estimated BRL6.5bn. BdB says Voto gives it access to the vehicle financing market, as well as increased corporate banking. Voto meanwhile gets access to a government-backed funding and distribution structure. BdB was advised by UBS and Votorantim by the Boston Consulting Group. Finance minister Guido Mantega says the acquisition helps to strengthen Brazil’s financial system amid crisis, according to wire reports. BdB lost its position as LatAm’s biggest financial group after Itau agreed to a takeover of Unibanco in November. Also in November, BdB bought a majority stake in Sao Paulo state-owned lender Nossa Caixa. M&A specialists anticipate further consolidation in the Brazilian banking sector including state-owned entities buying smaller private sector banks, larger banks both private and state-owned acquiring credit portfolios of middle market firms, and foreign players seeking to increase their share through acquisitions. The big question mark hangs over how Bradesco will handle the sudden surge by its three biggest competitors, which demotes it to third from first place. It was rumored to have bid for Voto, but executives away from the deal said Bradesco’s desire to buy a controlling stake found little support from the target’s controlling shareholders.

Goldman Sachs has changed its forecast for Brazilian cumulative rate cuts to 250bp from 150bp. “This would reduce Selic to 11.25% by September, instead of our previous forecast of 12.25%,” says the shop. It has shifted because of a better inflation outlook (it cut the IPCA inflation forecast to 5.5% from 6.0% previously) and because the risks for a faster and wider output gap have increased significantly, particularly as evidence mounts that industrial production and real GDP growth contracted sharply in the fourth quarter. Goldman forecasts that at the next Copom meeting, which is scheduled for January 21, it will cut the Selic by 25bp, to 13.50%, then accelerate to 50bp per meeting from March onward. It sees four cuts that take the Selic to 11.50% by July, followed by 25bp in September. “Thereafter, the Copom would leave Selic unchanged at 11.25% until the end of 2010,” says the shop. Goldman also changed its forecasts for the BRL for the next 3, 6 and 12-months to BRL2.35, BRL2.40, and BRL2.45 from BRL2.55, BRL2.50 and BRL2.45. “For December 2009, we maintain our BRL forecast at BRL2.45 from a previous BRL2.45. For 2010, we maintain our forecast at BRL2.40. For the next three months, we have altered our forecast range for the BRL to BRL2.15-BRL2.45,” says Goldman.

US security services firm Brink’s Co. says its Brazilian subsidiary has acquired Sebival and Setal for $50m in cash. Sebival and Setal were previously part of cash-in-transit and payment processing services company Sebival Seguranca. A Brink’s spokesman explains that the acquisition does not include two other units that formed part of the company. He also confirmed the deal, which is has been completed, was paid for in cash and will increase Brink’s market share in Brazil “to the low 20s from the high teens.” A US-based analyst who asks not to be identified says Brink’s had $153m on cash at hand in the third quarter of 2008 and that this deal “will be viewed favorably by investors.” The analyst, who has a strong buy rating for Brink’s, says the acquisition will be “slightly accretive and won’t affect ratings.” No financial advisors were involved.