Category: Brazil

German vehicle manufacturer MAN Group is acquiring Brazil-based VW Truck & Bus from Volkswagen for EUR1.175bn enterprise value. MAN, in which VW has a 30% voting stake, is financing the acquisition with cash on hand and existing bank lines, according to a banker close to the process. Rothschild and Goldman Sachs advised the buyer, while UBS worked with Volkswagen. “Acquiring the Brazilian company and its strong brand enables MAN to expand into the South American market, one of the fastest-growing regions,” says the buyer. “The new business area with its strong market position will provide MAN with access to the Latin American market,” says MAN CEO Hakan Samuelsson. The target is Brazil’s largest truck manufacturer and leads the market for trucks with a gross vehicle weight of more than five tons, according to MAN. The vehicles are primarily sold in LatAm and South Africa, and around 47,000 trucks and buses were supplied in 2007, it adds. Bankers away from the transaction say the deal may be part of a larger strategy between Volkswagen and MAN, which have existing cross investments and shareholder agreements in place. The unit will be transferred to MAN January 1. Both companies’ boards have approved the transaction. MAN makes commercial vehicles, engines and mechanical engineering equipment with annual sales of approximately EUR15.5bn and around 55,000 employees worldwide.

Brazilian paper and pulp company Aracruz failed to come to an agreement with banks regarding a settlement over some $2.13bn in derivatives losses it incurred by taking speculative bets on the direction of the BRL. A November 30 deadline was extended until Friday, December 12, but Aracruz says in a statement to the CVM posted Friday that an agreement has not yet been reached, and that discussions are still going on. A local report in Valor noted last week that the group of banks Aracruz is in talks with offered a 7-year loan at a rate of some 700bp over Libor, though that apparently wasn’t enough to conclude the talks. Upon finding out about the loss in September, Aracruz fired its CFO Isac Zagury and last month shareholders voted to sue the executive over the loss. The FX loss also led to a halting of VCP’s bid to acquire a 28% stake it didn’t own in Aracruz from the Lorentzen Group. That deal is still pending and may move ahead next year if the company can get past its derivatives woes.

Banco BMG is the third Brazilian midcap bank to be downgraded by Moody’s in as many days. The bank’s rating was lowered to Ba2 from Ba1 and the outlook is stable, according to Moody’s, which last week indicated it would be lowering the ratings of mid-sized banks that face funding problems. Since most banks like BMG and its recently downgraded peers Cruzeiro do Sul and Bonsucesso depend on financial institutions for funding, they are far more exposed to a liquidity crunch than their larger counterparts, which count on retail deposit bases for funding.

Brazilian state-owned oil giant Petrobras has secured a JPY75bn ($750m) 10-year loan from a club of Japanese banks. The proceeds are being used to finance capital investments at the company’s Henrique Lage refinery in the state of Sao Paulo. The deal was led by Sumitomo Mitsui, Mizuho and Tokyo-Mitsubishi, with a guarantee from NEXI, a Japanese export credit agency. The deal wraps up Petrobras’ capital raising plans for 2008, the company says in a statement.

Brazil and Peru are expected to start easing rates next year. Credit Suisse believes there is room for a monetary easing cycle in Brazil starting at the next Copom meeting on January 20-21, 2009. Goldman Sachs forecasts six consecutive cuts of 25bp per meeting beginning in January, reducing the Selic to 12.25% by September 2009. The rate should remain unchanged at 12.25% until 2010, says Goldman. On December 10 the rate was kept unchanged at 13.75%. On the same date, Peru also opted to keep rates unchanged at 6.50% for the third straight month. But the country’s central bank should also begin cutting rates in 2009, says analysts. “In our assessment, the [Peruvian] central bank might initiate a monetary easing cycle sometime during the first quarter of 2009, as inflation pressures are starting to alleviate on the back of lower commodity prices and, while still strong, the activity momentum is starting to soften,” says Goldman Sachs.

Moody’s has downgraded Brazilian midcap bank Bonsucesso to Ba3 from Ba2. The move follows the agency’s downgrading of Cruzeiro do Sul on Wednesday. The move is driven by the bank’s lack of access to financing which may drive a further shrinking of the bank’s lending operations and in turn its balance sheet. Mid-sized banks have been among the worst hit financial institutions in LatAm in the wake Lehman Brothers’ collapse in September. The outlook for 2009 for the sector remains grim, say Moody’s analysts.

Several companies have recently shown interest in acquiring Brazilian sugarcane grower and ethanol producer Nova America, according to two sugar industry experts who asked not to be identified. One of the companies rumored to be interested in Nova America, a subsidiary of Sao Paulo-based holdco Rezende Barbosa, is ETH Bioenergia, a subsidiary of Odebrecht Group. ETH executives did not return calls seeking comment, though the company has said publicly that it is looking at acquisition opportunities. Other potential bidders for Nova America, which reported total assets of BRL1.7bn in its most recent quarter, could include large non-Brazilian oil and biofuel companies, says one Brazil-based executive who in the sector. The ethanol and biofuels industry has seen substantial consolidation this year. This month, Monsanto completed its purchase of sugarcane biotech company Aly Participacoes, the parent of CanaVialis and Alellyx, for $287m. More acquisition opportunities exist in Brazil, especially as smaller companies continue face difficulties in obtaining financing, say the executives.

While the worst of the liquidity crunch apparently behind Brazil’s mid-sized banks, the outlook for 2009 is grim and little if any growth is expected for the sector, according to Moody’s. The agency has downgraded Banco Cruzeiro do Sul to Ba2 Wednesday and maintained a negative outlook on the institution. “We have a negative outlook on the sector for 2009 and don’t discard the possibility of more downgrades,” Ceres Lisboa, an analyst at Moody’s in Sao Paulo, tells LatinFinance. Another bank likely to see its rating lowered by year-end is Banco Bonsucesso. For both Cruzeiro do Sul and Bonsucesso, funding remains a chief concern. The former has some $227m in debt maturing in 2009, says Lisboa. Overall, most institutions in the mid-size space are seen shrinking their operations as they prioritize liquidity and cash positions over portfolio expansion, she notes. That means banks will consider selling portfolios or even their entire operations to avoid insolvency, according to Moody’s.

Brazil’s Banco Itau, which in the past months has acquired a number of payroll deduction loan portfolios in Brazil, appears to be eager to push further into the banking subsector. A senior Itau official has told local Brazilian press that the bank is eager to increase its activity in the space in the wake of several portfolio acquisitions in October. That could include outright acquisitions, say analysts covering the sector. Moody’s’ Ceres Lisboa notes there are several well run banks facing funding difficulties which would make for attractive targets. Considered to be the most secure form of consumer loans, payroll deductions were largely pioneered by mid sized banks and have taken off in Brazil in the past three years. Large banks like Bradesco and SocGen have in the past two years bought payroll loan specialists like BMC and Cacique, respectively.

Lower commodity prices, lower inflation and lower interest rates in 2009 will help EM economies recover somewhat by the end of next year. The BRL, which on December 9 traded at BRL2.45, is expected to strengthen to BRL1.90-BRL2.00 per dollar by the end of 2009, according to Merrill Lynch equity analyst Michael Hartnett. He believes that once interest rates fall, the BRL will begin recovering. Barclays Capital also sees inflation risks fading in Brazil, where recession risks will open the door for interest rate cuts.