Category: Brazil

Brazilian steelmaker CSN plans to spend up to BRL410m on repurchasing as much as 10.8m shares. The program will last until October 29. CSN has 455.34m shares outstanding, which closed at BRL38 Monday, down from BRL44 Friday. Separately, falling prices of CSN ADRs could lead to significant losses on swaps tied to their price, JPMorgan says in a report. “The company has had substantial gains in this swap – around $300m in H108 alone. However, given that CSN’s ADR price has already plunged about 45% in 3Q08, we estimate that the noncash losses on this instrument may be up to $600m,” the bank says. CSN says it has made a net positive position of $845m since 2003 on the swap contract, which it renewed in July.

LatAm is taking a beating in sympathy with plummeting US stocks and emerging markets are on edge after the US bailout was rebuffed at Capitol Hill. Brazil’s Ibovespa tumbled more than 13% to 43,766 before bouncing to finish at 46,028, still a hefty 9.36% loss for the day. According to wires, this was the sharpest decline in more than a decade, and the BRL meanwhile slid 5.6% to 1.964/USD. Other regional stocks and FX were also pummeled, including Mexico, whose bolsa slid to 23,789 before ending the session at 23,955, a 6.40% loss on the day, extending a bear trend. The peso was meanwhile trading on the weak side of MXP11/USD and the Dow Jones shed almost 7% amid a sharp uptick in volatility. As secondary markets get increasingly technical and in some cases, disorderly, fundamentals go out the window and more downside looks likely. A relief rally is possible if/when the rescue package is approved, but as wilting developed world demand dents commodities and begins to infect Asia, the resilience of LatAm is called into question. “Even a recovery out of a bill approval will reveal to be temporary, since the economy is just starting to be affected,” says Rogerio Chequer, principal at US-based hedge fund Atlas Capital Management. “The long term prospects for emerging markets are still constructive, but we have a very tough patch ahead of us,” adds Chequer. According to the investor, LatAm will not be immune to deleveraging and economic slowdown, and his shop has a very bearish short term view. “The financial crisis is just now starting to affect the real economy and the US consumer, who is still leveraged,” Chequer adds. Expect further shadowing of US markets by LatAm, as well as heightened risk aversion.

Brazil’s Usiminas has raised $550m in a JBIC A/B loan to capitalize its Japan-based steel mill operations. The Japanese development multilateral lent Usiminas $275m while the rest was syndicated to a club of three banks: Mizuho, Sumitomo, and Tokyo Mitsubishi. Usiminas officials decline to comment on the margin of the facilities. Usiminas is also readying a $400m IDB A/B loan, with an 8-year tenor on the B portion priced at Libor plus 75bp, company officials told LatinFinance earlier this year. Sumitomo is leading that transaction, presumed to be targeting Japanese lenders. That kind of margin is unlikely to fly with conventional LatAm lenders in the present environment.

Brazilian toll-road operator CCR has completed a BRL300m 1-year debenture issue. The bond pays DI plus 1.6%. The deal consists of a single BRL300m tranche, which was bought by underwriter Bradesco, a CCR investor relations official tells LatinFinance. This type of bond, becoming more frequent in Brazil as public markets remain unsettled, functions like a loan, including a quicker and less regulatory-intense process, the official says. The notes were not rated.

A small group of professionals at Maua Investimentos, the Brazilian hedge fund, have left the asset manager to start a new vehicle, to be called Octante Capital. The initiative, headed by William Trosman and Martha de Sa, formerly part of the new markets section of Maua, will focus on structuring deals in real estate and agriculture. The entity has some BRL50m under management, but will look to raise external resources after developing a track record. Sa and Trosman split on amicable terms from Maua, which made a strategic decision to focus on core asset management, motivated by near crippling losses over the past 12 months. Octante will compete with local shops like Vision, which specializes in securitization of agriculture and real estate, among other things. The team wants to hire a credit specialist and may look to local banks and asset managers.

Both Vale and Cosan say they have not suffered losses related to hedging and protection against currency fluctuations. In the wake of a substantial loss by Sadia – some BRL760m – and an unknown amount by Aracruz announced late last week, speculation of further NDF and FX hedge losses at exporters ran rife in the investing community. Vale emphasizes that 95% of its revenue is dollar-based and that 99% of its debt is also based on the US currency, despite the fact that it borrows in the local BRL market. Cosan says it does not have any leveraged positions in what it calls speculative derivatives with exposure to fluctuating FX. Embraer said late Friday that its hedge policy does not have any speculative component and that the derivative instruments in place are exclusively held to protect its operations against a potential loss arising from adverse changes in interest and FX. It adds that it only has NDFs and plain vanilla interest rate swaps, without any leverage.

Neither Brazil’s economy nor its banking sector will be dented by the financial crisis ripping through developed markets, according to the head of Brazil’s largest private financial institution by assets. “There isn’t the slightest chance this crisis will affect Brazil,” Bradesco CEO Marcio Cypriano tells LatinFinance. He argues that in Brazil, all aspects and entities of the economy are overseen by a single prudent and competent entity – the central bank – and that since the financial system is properly regulated, it will avoid contamination. Cypriano points to the central bank’s recent decision to raise rates to quash inflation as an example of the swift policy response. And Cypriano is similarly optimistic about the future of his own institution, saying that the crisis poses no threat to Bradesco’s margins. Financial sector analysts have expressed concern about Brazilian banks’ ability to continue growing portfolios amid rising external funding costs. While acknowledging that the higher cost of dollar-denominated funding has led it and other banks to refinance smaller portions of their credit lines, Cypriano says the overall impact on profits and revenues on Bradesco will be zero. The bank’s local deposits funding base, worth some BRL123bn, will more than make up for a drop in other funding sources, he adds. Bradesco recorded a net profit of BRL4.1bn in the first half. It is among the most profitable banks in the country, with an ROE 28.9%, ROA of 2.5% and NPLs of 4.5%. At the end of last week its market cap stood at BRL81.5bn.

Brazilian meatpacker Sadia has obtained a 1-year line worth BRL1.6bn in order to compensate for financial losses, including the BRL760m it said it lost from liquidating FX futures positions. The poultry producer expects to refinance the loan but a Sadia spokeswoman declines to disclose the lender or rate when contacted by LatinFinance. According to local press reports of a Friday conference call, the company said the rates were “competitive” and that it plans to refinance soon, possibly using loans from BNDES. Sadia will chop its 2009 investment budget to cover the loss. Separately, Moody’s cut Sadia’s debt rating to Ba3 from Ba2. “The rating action reflects the expected increase in Sadia’s adjusted total debt to Ebitda ratio to well above 4.0x as a result of new short term bank debt that has been raised over the past weeks to cover the derivatives and counterparty losses,” the agency says. As of June, the debt to Ebitda ratio for the preceding 12 months was 1.8x, according to regulatory documents. The rating remains under review, with further downgrade possible if liquidity pressures increase. Sadia, one of Brazil’s largest food exporter, also fired CFO Adriano Ferreira, who is replaced temporarily by IR director Welson Teixeira.

HSBC has extracted a trio of bankers from Citi to fill key positions in Brazil. Marcelo Marangon has been appointed head of global banking for Brazil at the European bank, which is heard looking to take advantage of the investment banking crisis to add LatAm talent. He was previously head of Citi’s Brazil corporate bank, as well as head of corporate finance at the US shop and LatAm head of asset based finance. Marangon joins HSBC in mid-November, reporting locally to Andre Brandao. Meanwhile, Alexandre Guiao will join HSBC late October as sector head for the diversified industries and consumer and retail groups, part of the bank’s Brazil global banking unit. Guiao was recently Citi’s head of corporate banking for industrials and agribusiness. He will report to Marangon locally. And Cesar Ming will join him at the same time to lead the financial institutions group. Ming was part of the FIG unit at Citi and will also report to Marangon. HSBC is heard looking to hire from other LatAm shops damaged by the subprime crisis.

BNDES has approved Thursday a financing of BRL329m for power transmission company Companhia de Transmissao de Energia Eletrica Paulista. The 2015 facility will pay interest of TJLP+1.8%. CTEEP, the local unit of Colombia’s Interconexion Electrica, will use proceeds for its BRL497m 2008-2010 investment plan.