Category: Brazil

S&P has revised its outlook on the B+ ratings of Brazil-based protein company Bracol Holding (formerly Bertin) to negative from stable. “The outlook revision mirrors the challenging operating environment for the beef sector in Brazil,” says S&P analyst Reginaldo Takara. “High cost pressures, margin compression, and tight credit availability in bank and capital markets have made it more difficult for companies in the sector to implement their growth and financial strategies.” Market conditions for beef companies in Brazil have been rather challenging because of high cattle costs and declining profitability and cashflows in 2008, says the agency.

Brazilian petrochemicals producer Braskem has wrapped up a 5-year $725m pre-export facility, concluding a successful financing in difficult market conditions. While the deal was launched long before the most recent panic selloff and rise in spreads over Libor, the fact it was upsized from an originally targeted $500m and did not see margins flex is notable and an encouraging sign. Fees ranged between 70bp and 35bp. “Banks were interested in participating because Braskem is a strong company and a relatively infrequent borrower,” says a banker on the deal. The margin is Libor plus 175bp and the facility is secured by the company’s future exports. In the past 12 months, the Braskem’s exports totaled $2.2bn. Calyon, Citi, and Santander, which inherited the deal from ABN, led the transaction. Braskem says its average debt term is 11 years and that its annual payments are below its cash generation capacity. MLAs with $50m tickets include Banco do Brasil, BBVA, ING, Intesa, Mizuho, Natixis, Standard Chartered and Sumitomo Mitsui.

Compared to the dollar, the 12-month outlook for most major LatAm currencies is mixed, with the MXP and CLP expected to strengthen and the ARP and BRL weakening. Pablo Breard, head of international research at Scotiabank expects the ARP, which yesterday closed at 3.23, to drop to 3.83 and the BRL, which closed at 2.20, to go to 2.35. Meanwhile, he expects the CLP, which closed at 614, to end stronger at 597. The MXP, which yesterday closed at 12.36, should strengthen to 11.87, he notes. In the shorter term, the situation looks better for all these currencies except ARP. By the end of 2008, Breard expects to see the MXP trading at 11.70, the CLP at 580 and the BRL at 2.12. The ARP, on the other hand, is expected to close 2008 at 3.50. Rodrigo Valdes chief LatAm economist at Barclays Capital says the currencies are reflecting weaker commodity prices and slower growth, as well as “an overreaction given investors’ unwinding of their positions.” He adds that volatility makes a short-term forecast difficult to make, but believes that “at least the CLP and MXP should be firmer in a few months.”

Brazilian real estate company Even Construtora e Incorporadora plans to raise BRL150m through private share placements. Existing holders will be able to purchase 37.5m units at BRL4.00 each through November 7. Even’s shares closed Wednesday at BRL3.12. The move follows a similar decision this week from fellow developer Rossi Residencial to raise BRL150m from the private sale of 34.48m shares at BRL4.35.

Brazilian steelmaker Usiminas has signed a BRL493m 7-year credit facility with state development bank BNDES. A BRL148m tranche pays interest at the “cesta de moedas,” a rate linked to a basket of currencies, plus a spread of 1.76%, and a BRL345m tranche pays TJLP plus 1.76%. The funds will be used to build a new hot-rolled steel unit at its Cubatao mill in Sao Paulo state. The new facility is part of Usiminas’ $14.1bn investment program through 2012, some $2.4bn of which will be used at the Cubatao mill. Separately, Usiminas’ Cosipa unit has purchased the 49% of metals distributor Dufer that it does mot own from Germany’s Thyssen for BRL92.4m. The acquisition of Sao Paulo-based Dufer is aligned with Usiminas’ long-term plan to take a bigger share of the metals services and distribution sector.

GWI Asset Management, the Brazilian investor has shut down two of its four funds, citing a lack of liquidity and substantial losses. “For a few years they were the best performing fund in Brazil,” says a Sao Paulo-based asset manager away from GWI. The GWI FIA fund was known to take highly levered, long-only positions primarily in steel, energy and retail stocks. The GWI Classic fund also took long equity positions, though without leverage. Both closed down yesterday after having fallen 89% and 36%, respectively, this year. Assets under management (AUM) stood at BRL32m and BRL52m. “Their performance was based on the fact the market was going up,” concludes the manager. “They were known for taking very aggressive, levered positions,” notes another hedge fund manager, who recalls seeing ads on television and in the papers touting the fund’s outperformance. GWI, founded by Mu Hak You, a Sao Paulo-based manager of Korean descent, has two other vehicles that are still up and running, say fund insiders. The GWI Private and GWI PIPE funds are down 41% and 29% since inception in 2005 and 2008 respectively. A GWI spokesman says funds are being closed to allow investors an orderly redemption process. It is worth noting that GWI Classic, the non-levered fund, is still up a net 1,565% since its 1999 inception. In January 2007, all of GWI’s Brazil funds had a total BRL3.2bn AUM. In October 2007, it was the 15th largest independent asset manager in Brazil by AUM.

Brazilian asset managers continue to see heavy outflows of cash as investors choose to park money in what they view as safer and higher-yielding instruments. “A lot of multimercado funds are underperforming the CDI and investors continue moving into instruments like CDBs,” says one portfolio manager at a Sao Paulo-based fund, referring to Brazilian certificates of deposit, which pay a spread over the CDI rate. Most multimercado funds are underperforming CDI at the moment, he adds. Multimercado funds have seen redemptions of BRL37.3bn so far this year through October 3, with BRL7.1bn exiting in the last month, according to ANBID, the national association of investment banks. Fixed income funds have lost BRL24.0bn so far this year, with BRL466m leaving in the past 30 days. Equity funds, meanwhile, have lost BRL9.4bn this year.

The Brazilian subsidiary of Switzerland-based Multigrain has received an investment of almost $200m from CHS and Mitsui. CHS invested $76.25m in Multigrain, increasing its total investment in the company to $134.5m. Mitsui meanwhile spent $123.7m, bringing its total investment in the company to $210m. As a result, CHS and Mitsui now each own a 39.35% stake in the Brazilian company, with the remaining 21.3% owned by PMG Trading of Brazil. A CHS spokesperson says the investments are being made from the company’s existing resources and that no outside advisors were involved in the transaction. The funds will be used to expand Multigrain’s operations, which include grain origination and export facilities, integrated production of soybeans, corn, sugar cane and cotton as well as agricultural processing.

Central banks in Colombia, Brazil and Argentina have moved to ease pressures on their respective economies as currencies weaken and credit conditions tighten. Brazil’s central bank has taken two measures to improve liquidity: it siphoned off a portion of its $207bn in FX reserves to help exporters finance their short-term trade lines that have been reduced or cut altogether by their banks, which in turn have to obtain the funds in the now more expensive external market. Goldman estimates this sum to be between $10bn and $15bn. Secondly, the central bank has allowed leasing companies to issue short-term notes, a measure that had been permanently eliminated earlier in the year, and given mid-sized banks the ability to use their loan books as collateral for CB requirements, instead of having to acquire government notes. The intention is to increase liquidity and flexibility for smaller lenders, five of which had their outlooks downgraded to stable by Fitch in light of the more difficult operating environment. In Colombia, Banrep said it would cease to intervene in the FX market, a measure established on June 26, that involved purchases of up to $20m a day through the end of 2008. The goal is to relieve some of the depreciation pressure from COP, which has lost 30% of its value versus the dollar since June 19. Banrep also reinstated the use of FX volatility options that help stabilize the currency. In Argentina, the central bank hiked the repo rate by 75bp to 10.50% in an attempt to make purchases of ARP more attractive. The currency, which has been allowed to move within a range of around ARP3.05-ARP3.20 over the past three years, has weakened 6.25% since August 26 to ARP3.23, its weakest point since April.

S&P has revised the outlooks on Brazilian mid-size banks Banco Daycoval and Banco Indusval to stable from positive. Daycoval’s BB minus rating and Indusval’s B+ mark remain intact. “The revised outlooks on Daycoval and Indusval incorporate the more challenging operating environment for financial institutions in Brazil as a consequence of the turmoil in the global financial markets,” the agency says. S&P finds limited funding options will be the biggest challenge, adding that it does not see a weakening in the banks’ business profile. Meanwhile, Fitch weighed in with a cut in the outlook to stable from positive for the following: Daycoval (BB minus), BicBanco, Banco Panamericano, Pine (B+) and Banco Tricury. Fitch notes an “increasingly challenging operating environment given that current international and domestic liquidity pressures on bank funding has made prospects for continued growth more difficult.” It adds that positive outlooks had been generally predicated on expectations of continued loan and business expansion in an environment of sustained strong growth of the Brazilian economy, and relatively stable domestic markets.