Category: Brazil

The US Department of Justice says it has filed suit in Chicago against Brazilian meatpacker JBS to block its proposed purchase of Kansas City-based National Beef Packing Company. The DOJ claims the acquisition – JBS’ third in the US since 2007 – would “complete a fundamental restructuring” of the beef industry in the US, resulting in higher prices for consumers. It also alleges that it violates anti-trust law. JBS agreed to acquire National Beef in March for $970m. At the same time it bought Smithfield Beef for $585m, a transaction which the DOJ has decided not to challenge. JBS entered the US in 2007, through purchasing Colorado-based Swift for $1.46bn.

The Brazilian government has cleared the way for Telemar Participacoes’ BRL5.86bn takeover of Brasil Telecom. Telecom regulator Anatel approved changes to regulations at a meeting in Brasilia that end a prohibition on the controlling shareholders of Brazilian telephone companies from owning a phone carrier in another region of the country, on which the deal hinged. Telemar has issued BRL4.3bn in 8-year CCB bank notes at DI plus 180bp, and placed BRL3.6bn in 1-year paper at DI plus 160bp to fund the purchase. It was last heard looking at the Brazilian loan market to complete the financing, after pulling a $1.5bn bond in September.

Brazilian steel company and aspiring iron ore exporter CSN has agreed to sell a 40% stake in Namisa, an iron ore mining complex, for $3.12bn, valuing the entire project at $7.8bn. The price tag, object of much speculation throughout the past six months, seems to initially suggest a favorable outcome for CSN. A senior executive at CSN tells LatinFinance he is very pleased with the valuation, but declines to provide details on the nature of the transaction. Halfway through the trading session on Friday the company’s ADR was up over 20% on the news. The process to sell Namisa began in earnest in May, when the company said it hired Goldman Sachs to advise it on the deal. CSN executives suggested at the time the asset could be worth up to $11bn; though some analysts said they didn’t think the asset was worth more than $6bn. Bankers eyeing the auction from a distance speculated the top bid would not be greater than $8.5bn. The winning consortium is made up of Itochu, Nippon Steel – which owns a 22% stake in Usiminas – JFE Steel, Korea’s Posco, Sumitomo Metal Industries, Kobe Steel and Nisshin Steel.

Brazil’s central bank (Bacen) moved to further increase liquidity in the country’s financial system by allowing banks to use debentures, or corporate bonds, as a guarantee for BRL-denominated borrowing transactions. The move is the latest in a long series of measures taken by Bacen to help keep Brazilian banks as liquid as possible. When borrowing from Bacen’s counter, banks can use corporate bonds as a guarantee. The amount of coverage necessary depends on the notes’ credit ratings. Using AA rated bonds, banks will need to post 120% of the borrowed value. For A rated notes, the amount is 130% and for B rated notes, it is 140%. Thursday, Bacen also said it would prioritize foreign currency transactions done at its counter that were destined for export-related activities, a measure designed to support the country’s cash strapped exporters. Other recent measures include establishing a credit line for agricultural sector companies, and frequently selling dollars into the market through auctions.

Banco Indusval, a Brazilian middle market lender, has closed a $47m line with the IFC and a group of commercial banks. While the deal was initiated in June, funds come at a critical time for Indusval, who like many other banks face tight credit conditions and elevated funding costs, especially for USD-denominated funds. The bank clinched a $32m 2-year syndicated B loan at Libor plus 225bp via bookrunners Commerzbank, Itau Europa and Santander. From the IFC, the deal’s global coordinator, the bank secured a $15m 3-year A loan, whose spread is heard some 15bp wider to the B loan. Indusval also raised a EUR-denominated line worth €7m at Eurobor plus 225bp. Participants on the deal include Fifth Third Bank, Israel Discount Bank of New York, Republic Bank and Standard Bank. S&P recently put Indusval on watch for a potential downgrade, noting a more challenging operating environment for financial institutions in Brazil as a consequence of turmoil in global markets. The IFC has been one of the most active lenders to Brazilian midcaps in the past two years, and holds a substantial portfolio of loans to the institutions. An IFC official says the institution is monitoring the situation closely. Currently it has no ongoing syndications designated to the sector.

Brazil’s Vivo Participacoes has obtained BRL389m 8-year credit facility from Brazilian development bank Banco do Nordeste do Brasil, it says. The facility will pay an interest rate of up to 10% per year. The mobile phone operator plans to use proceeds to expand its activities in Brazil’s northeast states.

JPMorgan has changed its Selic rate forecast to a hike of 25bp this month to 14% and a pause in December, instead of a 50bp hike at each of the two meetings that it had previously forecast. “Aggressive widening of BCB liquidity measures is a signal that the monetary authority is becoming much more concerned about the deterioration in local credit conditions,” says the shop. “In this scenario, it is difficult to distinguish between liquidity and monetary policy objectives, warranting a less hawkish approach from the Copom despite the risks arising from the massive real depreciation,” it adds. However, JPMorgan expects Brazil to keep a hawkish stance in order to anchor inflation expectations while the impact of the FX pass-through to inflation is absorbed by the economy. “We see the Selic rate flat at 14% until the end of 2009,” it concludes.

Fallout from the international credit crunch should not slow Brazil’s ambitious infrastructure plans, BNDES president Luciano Coutinho tells LatinFinance. “It would hurt infrastructure very little. Most of the infrastructure [lending] was funded by BNDES, which will have the availability of funds to keep on financing,” he says. On the equity side, he notes that some foreign investors might not be bidding in the short-term, but Coutinho does not expect interest to disappear given the strong returns the projects offer. BNDES has enlarged its export credit capacity by BRL5bn, and stands ready to offer other support if needed. Given the strength of Brazil’s banks and state-backed lenders like Banco do Brazil and Caixa Economica Federal, Coutinho expects BNDES’ support role to be temporary. Through September, the Bank has lent BRL53bn, out of a total budget of BRL80-BRL90bn, after lending BRL65bn last year.

BTG, the Brazil-based startup of Andre Esteves, UBS’s former global head of fixed income, has snapped up Lehman’s Brazil operations for an undisclosed sum. BTG, barely a month in business, is understood to have bought all of the US shop’s Brazil assets, including investment banking, trading, fund-raising, IT infrastructure, and a portfolio of fixed income assets. BTG, whose partners include 11 senior UBS and Pactual executives who left the Swiss bank after it scaled down its risk profile, manages $800m in proprietary funds and is looking to raise up to $1.2bn extra in third party resources over the next several months. It has a non-compete with UBS which precludes any overlapping business. But market participants doubt BTG – many of whose partners are successful bankers – will completely avoid competition. The fact that BTG tapped Lehman’s investment bankers adds fuel to the speculation, although in a statement, BTG says it will discontinue the investment banking activity and withdraw an application at the central bank for a license. Trading competitors of Lehman in Brazil say the shop had a local treasury desk with a portfolio of high yield corporate credit, derivatives, and other fixed income assets. Prior to its implosion, Lehman had been developing a local business centered on procuring high-yielding credit assets and repackaging them for hedge funds and other investors offshore. BTG has offices in Sao Paulo, Rio, New York, London and Hong Kong. The purchase meanwhile undermines Barclays’ ability to leverage its Lehman acquisition in LatAm.

Brazilian finance minister Guido Mantega does not see Brazil’s growth slowing to 1%-2% next year, contrary to recent analyst estimates. “These analysts are colored by the negative mood in their own countries,” he tells investors and bankers at a Brazilian-American Chamber of Commerce event in Washington. Growth this year is expected to be 5.5%. Mantega cites strong capitalization and low leverage in Brazil’s banking sector, high reserves and low ratio of credit to GDP as factors that will insulate LatAm largest economy, calling himself realist, rather than idealist. “The crisis will come to Brazil, yes, but we are ready to combat it with measures to provide liquidity,” he says. Overall, the government is worried about a commodity price shock and inflation, but it sees negligible impact from the crisis, according to slides accompanying Mantega’s presentation. The minister predicts inflation will drop to 4.9% by the end of next year, from 6.3% in September, basis IPCA. Analysts attending the meeting say that Brazil is painting an overly rosy picture and that much depends on how the developed world deals with its crisis. However, many agree that Brazil is the strongest of the LatAm countries and best placed to emerge intact. Meanwhile, the Brazilian central bank cut reserve requirements on time deposits and leasing firms, as well as suspending additional reserve requirements on sight and time deposits. Goldman Sachs welcomes the large liquidity boost. “The measure is extremely potent and should help alleviate the credit crunch in the domestic banking system,” says the shop.