Category: Brazil

JPMorgan forecasts that the BRL, MXP and CLP will all strengthen by the end of 2009 compared to their present values. The BRL is expected to move to 2.00 from a current 2.28; the MXP is expected to go from 13.00 to 11.50 in Q4 2009; and the CLP should go from 677 to 550 by the end of 2009. As for interest rate policy, JPMorgan forecasts that Brazil could hike the Selic rate by 25bp this month to 14%, but it recognizes that the odds of an early pause are high, especially due to inflation risks. Mexico is expected to ease its rate by mid-2009 from a current 8.25% to 7.28% as inflation slows down, peaking at 5.73% this month and dropping to 5.55% by the end of 2008. The bank believes Chile’s rate will stay unchanged at 8.25% in an attempt to control inflation. Cuts should begin in mid-2009, when Chile is expected to start easing, hitting 7.50% by the end of 2009.

The World Bank has named Makhtar Diop country director for Brazil, effective January. Diop, a former minister of finance from Senegal, joined the Bank in 2001 as country director for Kenya, Eritrea and Somalia in the Africa Region. He was then appointed sector director of finance, private sector and infrastructure, in the LatAm and Caribbean vice presidency. Most recently, he acted as director of strategy and operations for Latin America and the Caribbean. The World Bank says Brazil is the IBRD’s largest partner, averaging about $1.4bn per year in commitments over the last five fiscal years. Net commitments from the bank to Brazil total $6.2bn.

In what may reflect overly aggressive leverage-based growth strategies, the bonds of 6 Brazilian beef companies have slipped into distressed trading territory. Bids on notes from Bertin (10.25% of 2016) Arantes (10.25% of 2013), JBS-Friboi (10.5% of 2016), Independencia (9.875% of 2017), Marfrig (9.625% of 2016) and Minerva (9.5% of 2017) were between 42 and 47 as of Friday, according to Credit Suisse. All were above 50 the week before. JBS, the most aggressive acquirer, could actually see its debt picture improve, according to Bradesco, if the US government succeeds in blocking one of its two most recent acquisitions, thereby freeing up some $450m in cash. As Argentina’s woes pile up, issues from Alto Palermo, Banco Macro, Impsa, IRSA, TGN, TGS and Transener have all seen bids drop to the 30s and 40s, from above the 50 mark just a week earlier. Meanwhile in Mexico, tortilla maker Gruma has seen bids on its 7.75% perpetual drop to 50 from 98 one week earlier, after being chopped to junk following heavy mark-to-market derivative losses.

Infinity Bio-Energy has decided to cancel plans to list in Brazil. The Brazilian ethanol producer, which is listed on London’s AIM, had filed in June to offer Brazilian depository receipts. It had been heard aiming for $250m in an offer via Morgan Stanley.

Brazil’s Aracruz Celulose has agreed to close out negative foreign exchange derivatives positions of about $2.5 billion, according to Brazilian newspaper Valor Economico. According to the report, banks involved in the operations gave Aracruz three days to close positions Monday. An Aracruz spokeswoman declined to comment. The pulp and paper producer announced earlier this month that it had a negative derivative position of BRL1.95bn, but unlike other corporates, it chose not to close positions. Aracruz ratings have been cut to Baa3 from Baa2, and a potential tie-up with rival Votorantim has been put on ice.

Credit Suisse, a leading LatAm investment banking franchise, has made substantial cuts to its Brazil team. Among those departing the investment banking group led by Jose Olympio are Rafael Pagano, head of Brazil ECM, Enrico Carbone, a director covering real estate and technology, and Marcio Guedes, who covered the consumer and agricultural sectors, say people close to the situation. Four others are heard to have been asked to leave the investment banking division, which was apparently staffed with 25-30 professionals in Brazil earlier this year. Also heard asked to leave is Roberto Attuch, head of equity research. Credit Suisse’s Brazil office is understood to have held off from axing staff until yesterday. But it appears to have been forced in line with other countries, where main offices have been pared back gradually amid rapidly deteriorating investment banking conditions, particularly in ECM. The up to nine staff reductions appears to represent a larger percentage of the local investment banking division than the 5% or so Credit Suisse says it is cutting globally, with 500 reductions. Carbone was hired from Merrill Lynch earlier this year to head real estate investment banking following the departure of Adriano Borges. Pagano was tapped this year to fill part of the role of Sebastien Chatel, New York-based head of ECM, who left to join former UBS colleagues at Merrill also earlier this year. Attuch is one of the bank’s leading LatAm analysts and was responsible for covering financials. A Credit Suisse spokeswoman declines to comment on specific departures.

Barclays’s chief LatAm economist Rodrigo Valdes expects Brazil’s central bank to announce it will keep Selic rates at 13.75% during the Copom meeting on Oct. 29. Merrill Lynch agrees, saying that “this would fit an explicit strategy to accumulate more information on a dramatically changed scenario since the last meeting and possibly re-evaluate the bank’s monetary policy strategy at the December meeting.” Merrill Lynch says the rate could be cut to 12.75% in the third quarter of 2009 and to 12.25% in the fourth quarter. However, Goldman Sachs says there is a 65% likelihood of Copom hiking 50bp to 14.25%, based on a surge in 2009 expected IPCA inflation.

Despite doom and gloom for emerging markets and the auto industry, car makers are reportedly sticking with Brazil. Both General Motors and Peugeot are keeping in place longer term Brazil investment plans, Dow Jones reports from the International Auto Show in Sao Paulo. The newswire notes a 4 year $1.5bn-$2.5bn commitment from GM, which says it will not downsize in Brazil. It also reports that Ford will invest BRL3.4bn in South America in the 2007-2011 period, of which 85% will be directed to Brazil. And the subsidiary Peugeot in Brazil will maintain its planned BRL200m investment for 2008, the local president says, according to Dow Jones. The newswire reports Peugeot has an investment budget of BRL500m to use in Brazil for 2008-2010.

Larger Brazilian banks will likely continue purchasing assets, particularly loans, from smaller banks, says Peter Shaw, MD at Fitch. “We’re likely to see acquisition of assets, though not acquisition of franchises,” Shaw tells investors at a Brazilian Chamber of Commerce panel in New York. He emphasizes that he does not expect the financial crisis to bring a round of consolidation among banks, as in the past. Rather, the larger banks will continue purchasing loan packages from small and medium-sized banks. Banco do Brasil has bought some BRL1.5bn in loan portfolios in the last 18 months, it said earlier this month, and plans to buy up to BRL3bn more. Banco Bradesco CEO Marcio Cypriano said in a Monday teleconference, according to local and wire reports, that he expects no significant merger and acquisition activity among Brazilian banks in the near future, but that his will look to buy portfolios from smaller shops.

The state of Sao Paulo will tomorrow (Wednesday) auction off five 30-year tollroad operating concessions worth BRL11.5bn. The sale coincides with the worst environment for Brazilian infrastructure financing in years. While the country’s large concession operators including CCR, CIBE, Ecorodovias, BRVias and Spain’s OHL, are expected to participate, hostile conditions are seen reducing the number of international bidders, which may undermine the process’ competitiveness. Concessions will be awarded to bidders that offer the lowest toll fare for each of the 5 roads. Those include Marechal Rondon’s East and West segments, Dom Pedro I, Raposo Tavares, and Ayrton Senna/Carvalho Pinto. Small and medium-sized operators and new entrants are also likely to decline to participate given their lesser balance sheets and limited access to capital, says a PPP specialist at a regional multilateral. Still, many of those expected to participate enter the crisis with strong balance sheets, says the executive, noting the average debt to Ebitda ratio for this sector in Brazil is 3.5x, and that most of the top participants including OHL, CCR, and Ecorodovias are well below that. Odebrecht, which has no tollroads in its portfolio, says it will also be participating. Like most bidders, its executives are counting on substantial support from local state and multilateral lenders to replace the bank market as a provider of funds.