Category: Brazil

LatAm sovereign credit ratings will be under increased pressure next year, Moody’s senior economist Mauro Leos says, particularly Brazil, Peru and Colombia – which the agency is keeping a notch below investment grade. “The ratings will be tested next year,” Leos tells a Moody’s panel on LatAm securitization in New York. He adds that they were not really being tested much this year thanks to strong growth and healthy fundamentals. The economist says his shop feels the ratings are robust at the moment, but much will depend on what happens with financial flows, the US recession and commodity prices. Lower rated credits such as Uruguay, Costa Rica and Panama, have ratings that already contemplate volatility, he adds.

The Brazilian government’s National Monetary Council has authorized BNDES to increase the limit of loans it can make to Petrobras. BNDES can now loan up to BRL12bn, after the CMN changed a rule limiting the development bank to loan up to 25% of its assets to a single company. Before the new rule, the federal government was considered a single client of BNDES, and state run companies such as Petrobras were obligated to share the limit. The new rule allowed Petrobras to separately borrow up to the limit of 25% of BNDES assets, which total close to BRL50bn. Petrobras has recently said it can remain comfortably financed through any financial crisis until 2010, using its own funds to finance short-term investments.

BNDES has approved financing of BRL1.5bn for mobile-phone operator TIM Participacoes. The package is split into three 8-year facilities. A BRL490m piece pays TJLP, plus 0.9%, plus an additional undisclosed risk spread assigned to the company. A BRL714m chunk pays TJLP plus 1.8%, plus the risk spread. A third BRL306m tranche, for non-equipment related expenses, pays ICPA plus the risk spread. The line will be used by the company to finance part of its 2009-2013 investment plan.

After a modest midweek bounce, LatAm bolsas have resumed the bear trend, with fresh losses in yesterday’s session. Brazil’s Ibovespa flopped 7.34% Thursday to 46,145, off the day’s low at 45,113. It skidded as deep as 43,766 earlier in the week, amid the sharpest decline in more than a decade, and remains under the influence of declining US markets and fears of further global deterioration. The BRL meanwhile slipped back to BRL1.925/USD, heading back towards the BRL1.964/USD Monday trough. Other regional stocks and FX also suffered, including Mexico, whose bolsa fell 4.34% to close at 24,027, off the day’s low, which was marginally above the week’s trough. And the peso slumped back to MXP11.174/USD, while the Chilean and Peruvian currencies also buckled. The Dow Jones meanwhile fell 3.22% and LatAm looks set to mirror the trend in technical trade, overshooting either way, though an end-of-week relief rally looks likely. Analysts are starting to fret over a much bigger negative impact on LatAm once the damage to US hedge funds and the real economy is felt. MSCI LatAm was down 19.6% in September, undermined mainly by Brazil (-23.1%) and Argentina (-24.7%) and worse than most other regional indices. However, some analysts are optimistic. “A combination of low LatAm valuations, and likely resilient corporate earnings will allow LatAm equities to bounce back,” says UBS. “Oversold EM markets at some point will enjoy a substantial trading bounce,” adds Merrill Lynch.

Duke Energy’s Brazilian unit Paranapanema plans to sell BRL341m in debentures, a minor increase from an originally slated BRL300m. The issue is split into a BRL250m 2013 tranche paying the DI rate plus 2.15%, and a BRL91m 2015 piece paying a fixed rate of 11.60%. The company’s board approved the increase in size due to increased demand. Proceeds will be used to repay debt. Citi and Itau managed the sale.

In a rare piece of positive news for the LatAm bank market, Braskem, the Brazilian petrochemicals producer, is heard increasing a 5-year pre-export facility. The deal will likely grow to at least $700m, from an originally targeted $500m, and with no flex on the Libor plus 175bp pricing, say people close to the process. Bankers and company executives are hesitant to celebrate before closing, noting volatile market conditions can lead to last minute pullouts that might push the final figure back down. The transaction, which had been waiting in the wings for months prior to launch in early September, is part of the takeout of a $1.2bn bridge raised last year to acquire competitors Ipiranga and Copesul. Braskem paid down part of the bridge late May with a $500m 2018 bond priced to yield 7.375%. The BB+/Ba1 offer was upsized from a $400m launch and led by ABN, Calyon and Citi. Braskem officials acknowledge that the loan is being wrapped up, but they decline to comment on any change in size. The facility is led by Calyon, Citi and Santander, which inherited the transaction through its acquisition of ABN AMRO’s Brazil unit.

Brazilian steel miner CSN is still in talks with potential bidders regarding a sale of its iron ore mining complex Namisa, say people familiar with the proceedings. The company is studying a handful of binding proposals, apparently including some from Chinese and Japanese consortia. Bankers away from the process estimate that top bids came in at around $8.5bn, more than the $5.0bn-$6.0bn some analysts estimate the asset is worth, but well below the $11bn the company wants. Reduced availability of debt financing for M&A and capex have not had any particularly negative impact on the willingness of bidders to acquire the asset, claims a person close to the seller. The company’s official line on the matter is that there has been no material news on the development, and that there is no set date for conclusion of the sale. But a more cautious environment and the track record of CSN’s main shareholder, CEO Benjamin Steinbruch, raise the question of whether a sale of Namisa will actually take place. This week, Mexico’s GFM gave up on selling Autlan because of skimpy bids amid hostile financing conditions. Goldman is advising CSN on the sale.

Brazilian rates are likely to rise at a slower pace amid an increasing likelihood of a global economic slowdown, which will pressure economic activity in Brazil as well as commodity prices, according to Bradesco. Dalton Gardiman, chief economist at Banco Bradesco BBI, the investment arm of Brazil’s largest non-government bank, has lowered his year-end 2008 Selic target by 25bp to 14.25%. He now expects just one further increase of 50bp at the October 28/29 Copom meeting and no change at the December meeting. The bias on inflation is now downward, according to the analyst.

Brazil’s JBS says it has made at least BRL722m in financial gains because of the recent depreciation of the real against the dollar. The announcement comes as Brazilian exporters scramble to reassure investors that their hedging strategies are still in the money, after poultry producer Sadia and paper maker Aracruz announced large losses last week due to underwater derivatives positions. JBS says it has not had problems managing FX volatility, and that the strengthening of the dollar against the BRL has actually boosted the value of JBS’s USD foreign assets, yielding gains in its daily hedging operations. Steelmaker CSN, responding to JPMorgan report forecasting an ADR-swap related loss, and miner Vale, has also announced suffering no FX-related derivative losses due to markets volatility.

Brazilian miner Vale plans to pour $4.05bn into expanding a port in the northeast of Brazil over the next 4 years. The investments are to be made in annual $1bn installments, says the company. The main destination for the funds is the Ponta da Madeira port, in the state of Maranhao, where two piers will be built to complement the two already there. The company is increasing iron ore production in neighboring Para state and plans to use the port to ship materials to Europe via Rotterdam. Vale officials tell local press they plan to double production of iron ore at the site and therefore need to hike capacity. A company official says expansion is part of Vale’s previously announced $59bn capex program, declining to specify how it will be funded.