Category: Brazil

UBS is predicting a rebound in LatAm equity and says Brazilian stocks are especially attractive. “We prefer Brazil at this point to other regional markets – although expect the whole region to benefit from a rally. Brazil is the cheapest main LatAm market, offers the best protected domestic growth and earnings story, and the most leverage to an improvement in sentiment,” says UBS. The shop says that besides low valuations, LatAm equity is attractive given robust economies and a peaking of inflation fears. It adds that commodity stocks have oversold, given a view that supply constraints will keep the commodity cycle firm. “Many Brazilian domestic stocks are at unusually low multiples, especially in the mid-to-small cap area,” says UBS. Amongst the big caps, its preferred picks are America Movil, Televisa, Cemig, Gerdau, Petrobras, and Vale. Of mid-to-small caps it highlights BMV, Homex, B2W, Rossi, and Cencosud. “We see particular value in stocks that have underperformed on rate hikes (Brazilian and Mexican retailers and homebuilders), given our view inflation fears have peaked,” says UBS. Since the peak on 19 May 2008, LatAm MSCI is down 22.5%, led by Brazil, which is off by 26.0%. The main risks to a sustained rally are the continuing impact of the developed world credit crunch on the financial sector, as well as the resulting investor outflows from EM equities. “But we believe this risk will affect mainly the timing of a recovery, not the recovery itself,” says the shop.

Argentine energy consortium Impsa is investing $750m in 10 wind farms that will generate 218MW in the Santa Catarina state of Brazil, Impsa CFO Julio Dreizzen tells LatinFinance. The company will sell the electricity to Brazil’s Eletrobras through a power purchasing agreement for 20 years, Dreizzen says. In May, Impsa priced $65m in 2009 bonds at 99.370 with a 9.500% coupon – at a yield of 10.125% – to meet its working capital needs for the year.

Brazil’s Banco Daycoval has picked Bank of New York Mellon for an ADR program, with each Daycoval ADR representing two preferred shares. BoNY also serves as trustee for Daycoval’s international debt facilities. BoNY is also running a DRs program for Parana Banco, at a ratio of 1:1. LatAm ADRs were mostly lower Monday, with financial institutions hit especially hard, BoNY data shows. Year to date, ADRs in heavyweights Itau and Bradesco are down 15% and 9% respectively.

Brazil’s Banco Daycoval has picked Bank of New York Mellon for an ADR program, with each Daycoval ADR representing two preferred shares. BoNY also serves as trustee for Daycoval’s international debt facilities. BoNY is also running a DRs program for Parana Banco, at a ratio of 1:1. LatAm ADRs were mostly lower Monday, with financial institutions hit especially hard, BoNY data shows. Year to date, ADRs in heavyweights Itau and Bradesco are down 15% and 9% respectively.

Standard Bank has hired a team of six project financiers from ABN AMRO in Brazil, led by Guilherme Alice. The team will focus on the same kinds of projects it did at ABN, Alice tells LatinFinance – including power, oil and gas, biofuels and infrastructure. At ABN the group arranged Brazilian deals including a $105m financing for Abengoa’s ATE III transmission project. Standard’s pipeline includes financing a 270MW wind generation portfolio in Brazil’s northeast, Alice says, declining to elaborate on details. The other members of his team are Rodolfo Valente, Fabio Kono, Lucas Martinelli, Fabio Souza and Wilson Chen. The team reports to Fabio Solferini, CEO of Standard’s Brazil operations and to Jonathan Wood, global head of project finance.

A handful of asset managers in Brazil’s young hedge fund industry, including Maua and Quest – both run by celebrity central bankers – are up against the ropes and being pummeled by redemptions. A combination of bad individual bets on the market, and a broad-based investor exodus into higher-yielding cash products like CDs, leave multimercado (macro) hedge funds gasping for air. “Only in the last 12 months have we really been able to get a clear sense of [multimercado] managers’ strategies and abilities,” says Gustavo Coelho, manager at Arsenal, a Brazilian fund of funds. He adds that until recently, the industry had little critical mass and was riding on a global bid for Brazil that kept asset prices moving up, lifting al funds, regardless of ability. Assets under management (AUM) at Maua’s main macro hedge fund have evaporated to BRL277m from BRL1.32bn a year ago, according to the CVM. Quest’s 30-day macro fund has been sliced to BRL418m from BRL1.75bn a year ago. So far in 2008, the Maua vehicle has delivered returns of 3.21% while Quest is down 5.91%, according to Anbid. Both are underperforming the CDI benchmark, which has returned 6.51% YTD. Arsenal estimates Brazilian hedge funds have underperformed CDI by some 2.35%, posting an average nominal gain of 4.16% YTD. Not all macro hedge funds have succumbed. Gavea’s main global macro vehicle is up 7.08% YTD with roughly the same amount of AUM it had a year ago, while Hedging-Griffo’s Verde unit is firmer by 10.78% and has seen AUM swell by BRL1.5bn in the 12-month period.

Finnish engineering and technology corporation Metso will supply the main technology for Brazilian pulp and cellulose producer Aracruz’s new 1.5m tons/year bleached hardwood kraft pulp line for EUR400m, Metso says. The pulp line will be built at Aracruz’s Guaiba mill in Rio Grande do Sul. The expansion will raise the mill’s total annual capacity to almost 2m tons and is scheduled to start production during the second half of 2010, Metso says.

Brazilian Metals producer Paranapanema has completed a BRL919.5m convertible debentures issue. The debentures, immediately convertible into company stock, were issued in two tranches. A BRL200m 2010 series pays interest of 6% over the ICPA inflation index, and a BRL719.5m 2019 series pays IPCA plus 9%. The first and second series were purchased by 13 and 17 investors, respectively, including four foreign entities in each, the company says. Santander managed the transaction. The offering came as part of an asset restructuring required by a 2006 agreement with creditors. Under the agreement, Paranapanema had the choice to raise capital through debentures or do an IPO. The IPO was canceled in March. Vale has said it is in talks to acquire Caraiba Metais and Cibrafertil, two of Paranapanema’s four units.

Brazilian securities were most frequently traded among EM corporate and sovereign debt in the second quarter, according to EMTA’s 2Q survey of secondary trading. The $241bn in Brazilian turnover is up 1% from 1Q, but down 20% from 2Q07. Argentine debt ranked third – behind South Africa’s $109bn – with a volume of $100bn. Brazil’s 2040 global bond remained the most frequently traded industry instrument, accounting for $20bn, up 9.7% from Q1 despite being down 63% year-on-year. Mexico saw one of the sharpest year-on-year drops in the region, falling 90.2%, to $36bn from $372bn.

Moody’s has downgraded the corporate family rating of Unialco, the Brazilian sugar and an ethanol producer to B3 from B2, and kept it on review for possible further downgrade. “The downgrade reflects primarily the deterioration of Unialco’s liquidity profile, credit metrics and operating performance, due primarily to the impact of lower than expected sugar and ethanol prices,” says Moody’s. The corporate abandoned a $150m senior unsecured notes issue announced last October 2007, leaving it with a weaker liquidity profile. Unialco reported net sales of BRL237m and Ebitda of BRL36m for its FY ending March 31, down 20.3% and 53.3%, respectively compared to FY 2007. Meanwhile, total financial debt increased to BRL408m in FY 2008 from BRL206m in FY 2007, resulting in an increase in Debt to Ebitda to 11.3x from 2.7x in 2007. “Due to this increase in leverage, Unialco has been forced to request waivers on its bank loan financial covenants. This comes at a time when the company recently changed its senior management team leading to possible changes in operating strategy,” says Moody’s. The downgrade review focuses on the company’s business plan and projections to be provided by the new management team, as well as its ability to improve the maturity profile and renegotiate covenants.