Category: Brazil

Brazilian refractory materials producer Magnesita has secured an attractively priced $475m 6-year loan from JPMorgan to acquire Germany’s LWB Refractories, say people close to the deal. Pricing for the loan has not been disclosed, but the cost of the new money is in line with Magnesita’s existing debt, which pays CDI plus 134bp, says a company official. Like the $1bn worth of long term debt on its balance sheet today, the new facility will be swapped into BRL. If the all in cost of the loan does indeed turn out to be equal to the company’s current cost of funds, Magnesita will have scored a substantial coup in the bank market, which has seen deals flexed by up to 150bp to reflect lenders’ higher funding costs. However, sellsiders familiar with the deal say the loan agreement likely includes a clause that will permit the lender to charge what banks are calling a liquidity premium – or a higher margin due to rising funding costs. The loan will eventually have to be syndicated but bankers away from the deal say that in today’s market conditions, they would not think of participating in a facility that pays less than what they fund themselves at. Until that happens, JPMorgan is likely to hold onto the $475m, they speculate. JPMorgan syndications executives decline to comment. Moody’s analyst Richard Sippli says Magnesita’s leverage should peak at around 3.0x with the assumption of LWB’s new debt. “We’re very comfortable with [Magnesita’s] leverage, even with the additional debt,” he says. UBS Pactual, meanwhile, notes the new debt load reduces financial flexibility for further M&A in the near future. As of June 30, Magnesita had cash equivalents of BRL542m.

Cosan plans to issue up to $500m in BRL-dominated promissory notes, becoming the latest Brazilian borrower to tap the short-term market. The notes will mature in 360 days and pay an interest of 3% over DI. The notes will come out of an existing $500m standby facility the sugar and ethanol producer took out in September from Bradesco. Proceeds will be used to help pay for the acquisition of Esso assets it bought this year for $950m. Cosan has also used $310m from a January rights offering and a $300m pre-export facility to finance the purchase, in addition to its own liquidity.

Brazil’s central bank (Bacen) kept its benchmark interest rate unchanged at 13.75% Wednesday. The decision, made unanimously by the Copom, reflects the high level of uncertainty in today’s market and Bacen’s overtly stated strategy to collect more data on the various factors that will affect inflation. Many economists expected the decision, though Goldman Sachs said Monday it saw a 50% chance of a 50bp hike due to higher inflation figures in recent readings. “The post meeting statement was more dovish than what we would have expected in a decision to hold,” the shop said late last night. “If the current level of uncertainty declines the central could resume the tightening cycle already in December,” it adds. “We now see the COPOM on hold at 13.75% until end-2009,” says JPMorgan.

Brazilian real estate company Agra plans to raise BRL100m from private share placements. It will price 78.13m shares at BRL1.28 each, during a subscription period running through December. Existing shareholders have preference on 0.48 share for each share held, with the controlling shareholders committing to buy an unspecified minimum amount. Agra is looking for funds after a BRL1.54bn tie-up with rival Cyrela was scrapped earlier this month. Competitors Even and Rossi have also turned to private share sales – of BRL150m each – in the last 2 months.

Brazil’s stock exchange appears set to see a sizable redemption in the coming week as freshly nationalized Argentine pension funds are forced to reallocate into domestic assets. An official at the country’s pension fund association, the UAFJP, tells LatinFinance some $650m of the country’s savings is today parked in Brazilian equities. On October 27, the Bovespa’s 546 listed companies had a gross market cap of BRL612bn, or $272bn using that day’s exchange rate, according to the exchange. That means the total position held by the Argentine pension funds amounts to some 0.2% of the Bovespa’s market cap – not an enormous amount. BMFBovespa officials were quoted by newswires saying news of the redemption was not welcome, but should not have much of an impact. With the Bovespa at its lowest in more than 2 years, now is an unfortunate time for Argentine funds to be exiting those positions wholesale.

The US Federal Reserve announced Wednesday it has agreed to provide swap lines to Mexico, Brazil, Singapore and Korea. The move is designed to boost dollar liquidity and reduce difficulty in obtaining FX in what the Fed calls “fundamentally sound and well run economies.” The program is good through April 30 2009 and comes with no policy strings attached – meaning there are no special conditions that must be met in order to access the lines. Brazil’s Bacen and Mexico’s Banxico say their respective lines are each worth $30bn. In both cases, the central banks will be using the Fed lines to provide swap liquidity to local corporates and financial institutions. Brazil’s central bank last week said it will offer up to $50bn in swaps to ease the pressure on local corporates. “Considering that [Bacen] started the process from a $22bn long position, the $30bn line made available by the Fed allows [it] to go up to the $50bn limit without actually increasing its liability exposure to USD,” says Alexandre Schwartsman, Santander’s chief Brazil economist.

Despite a freezing over of the local and international bank markets supporting long term infrastructure projects in Brazil, consortia seeking to acquire toll road concessions in the state of Sao Paulo turned out in force Wednesday. They placed aggressive bids, which will contribute, to significant drops in the price of tolls over the coming years. The state sold 5 concessions demanding BRL11.5bn in investment including BRL3.5bn in up front concession fees to be paid in the first 18 months. “I think the auction was big success and bidders demonstrated very strong appetite,” says a project finance banker in Sao Paulo backing one of the winning groups. (See below.) All offers were submitted with letters from lenders pledging financing support for the bids. While market volatility and lack of liquidity persist, projects will be financed through short term bridge loans, which are coming at historically elevated rates – some 200bp-400bp higher than what was seen a year ago, according to one frequent project borrower. But most of the bidders have taken a long-term view, assuming the volatility is short term and today’s higher costs of funds can be recuperated over the 30-year concessions, says the banker. The result surprises on the upside: other project finance bankers saw the timing as foolhardy and were calling for the sale to be postponed.

Pro Inversion has selected Brazil’s Constructora OAS to develop a damming project in Peru worth $76.9m. As part of the 20-year concession OAS will design, finance, build operate and maintain a damming and water conduction system that transports water from the Huascacocha River in Pasco to the current system known as Marca III. The new project, known as Proyecto Derivacion Huascacocha-Rimac, is expected to increase Lima’s water reserves by 52m cubic meters a year. Pro Inversion also says that 6 national and international companies presented bids for the project, but OAS offered the lowest cost per cubic meter. Sedapal, Peru’s water company, says in a letter to Conasev that the project will provide improved water service to 2.4m people living in north and east Lima.