Category: Brazil

Following Brazil’s announcement last week that it is planning to buy back $6.6 billion of outstanding Brady bonds, Venezuela has said it also plans to repurchase all its $3.9 outstanding of discount and par Brady bonds. The government said it will make a first buyback next month for $700 million and then complete the repurchase plan over the next few months, taking up the call option on the bonds. Venezuela is using rising foreign currency reserves, built up from booming oil exports, to reduce its foreign currency debt.

Despite stronger last quarter growth of 1.4% year on year, Brazil’s economic expansion slowed last year to 2.3%, half that of 2004 when it grew by 4.9%. This followed year on year growth of only 1% in the third quarter. Brazil’s GDP expanded by 0.8% between October and December last year, driven by growth of 1.4% in industry. Agriculture rose by 0.8% and services by 0.7%. Overall, in 2005, industry grew 2.5%, services 2% and agriculture 0.8%, the sector’s worst performance in almost 10 years. Brazil’s economic growth lags behind other countries in the region, such as Argentina (9.1%), Peru (6.7%), Chile (6.3%), and Venezuela (5%).

Brazil’s current account registered a deficit in January of $452 million, the first time in over a year the country’s account has slipped into the red. The Central Bank said the strength of the local currency was encouraging multinationals to increase profit repatriation and pushing local borrowers to ramp up interest payments owed abroad. The deficit in January follows a $570 million surplus in December last year and an $802 million surplus in January 2005. Last year, overall, Brazil posted a record current account surplus of $14.2 billion.

Brazilian TAM, the country’s second-largest airline, is planning to raise around $928 million via a sale of shares to international investors. The company filed with the US Securities and Exchange Commission to sell 35.6 million preferred shares in a global offering, including preferred shares in the form of ADRs to be traded on the New York Stock Exchange. The money raised will be used to upgrade TAM’s fleet, the company said. In June last year, the airline raised $179.7 million via a share sale to US and local investors, using the proceeds to increase the number of aircraft.

Brazil has abolished the 15% capital gains tax on local government bond trading for foreign investors in a move to boost their holdings of local debt from $5 billion up to $10 billion over the next 12 months. The government is confident that the abolition of the tax, despite cutting revenues by around $100 million a year, will attract greater foreign investment into the local debt markets, allowing the government to extend maturities and lower interest rates, thereby reducing costs. The tax change is in line with other markets in the region such as Mexico and Argentina.

As part of its strategy to improve its debt profile, Brazil is planning to exempt foreign investors from paying tax on securities trading in the domestic market. It is hoped that exempting foreign investors from the 15% trading tax will encourage their greater participation in the local debt market and ultimately help lower public financing costs.

Brazil’s largest sugar and ethanol producer, Cosan, has decided raise more funds abroad by reopening last month’s perpetual bond issue and offer a further $150 million worth of the instruments. Cosan originally issued $300 million perpetual bonds, carrying an 8.25% coupon and callable after five years, in the 144a private placement market. Last November Cosan raised $350 million through an IPO, achieving a share price above market expectations. The bond issue will be led jointly by Credit Suisse and Morgan Stanley.

Brazil’s January inflation rose 0.59%, the highest rate since October and above economists’ average forecasts of 0.55%. Year on year the rate was barely unchanged against the 0.58% recorded for the same month in 2005. Last year Brazil saw consumer prices rise 5.69%, above the targeted 5.1%; the government is this year aiming for 4.5%. The government says inflation last month was driven by the rising price of gas and gas alternatives.

Brazilian industrial output has begun to show signs of recovery, rising by 3.2% year on year in December, the highest surge in four months and double market forecasts. The increase in production may temper the Central Bank’s approach to interest rate reductions, say economists. The Bank has recently begun to look at bigger cuts to the still-high benchmark rate, currently at 17.25%. The government has revised initial output estimates for October and November to 0.4% and 1.3% year on year growth from 0.1% and 0.6%, respectively, showing better-than-expected growth. Overall in 2005, production was up 3.1%.

A hundred analysts and economists surveyed by Brazil’s central bank have forecast an average inflation rate of 4.66% for this year, compared with a previous forecast of 4.60%. Inflation last year dropped to a six-year low of 5.69%. The central bank is targeting inflation of 4.5% this year.