Venezuela has seen another rating downgrade, this time to Caa1 from B2 by Moody’s. “Venezuela is facing increasingly unsustainable macroeconomic imbalances, including a skyrocketing inflation and a sharp depreciation of the parallel exchange rate. As government policies have exacerbated these problems, the risk of an economic and financial collapse has greatly increased,” the agency says. Inflation is “out of control” at more than 50%, and the parallel exchange rate has reached, 64 VEB/USD, or 10 times the official rate. Sovereign yields have reached more than 15% in early December from less than 10% in mid-May, suggesting the country’s ability to access markets has been “severely curtailed.” The outlook is negative. The move follows an S&P downgrade last week to B minus.
Category: Regions
Oaxaca Set for Guaranteed Domestic Bond
The Mexican state of Oaxaca is looking to pay 8.50%-area on a fixed-rated domestic bond scheduled to price Wednesday, according to a person familiar with the issuer’s plans. The MXP2.76bn ($210m) 15-year bond comes with a 1.5% guarantee from funds received by the federal government and 25% from monthly government federal transfers to states and municipalities. Oaxaca is raising funds for public investment. Banamex, Interacciones and Santander are managing the deal, with Cofinsa as structuring agent.
S&P Cuts Vene
S&P has lowered Venezuela’s credit rating to B minus from B, it says, due to a “radicalization” of economic policy. The results of recent municipal elections are likely to reinforce the recent trend toward government intervention, creating more uncertainty regarding the country’s economy. “We expect a continuation of erratic economic policies in Venezuela that, along with pressures on external liquidity and sustained political polarization, will exacerbate the government’s dependence on oil prices and weaken its capacity to manage adverse shocks,” the agency says. Particularly worrying for S&P is new legislation allowing for President Nicolas Maduro to rule by decree. Sustained political polarization and growing economic distortions could “materially increase” the risks for the government debt over the next two years. The outlook is negative.
Peru Holds Rates
Peru’s central bank held rates at 4.0% at its monthly meeting. “This level of the reference rate is compatible with an inflation forecast of 2% in the forecast horizon (2014–2015),” the bank says in a note following the decision. It also takes note of Peru’s inflation, which is in the target range, GDP and supply considerations, and global economics. In November, the central bank surprised the market with a cut from 4.25% after 29 months of holds. The next policy meeting will be January 9.
CFR Sweetens SA Bid
CFR Pharmaceuticals has increased its cash and stock takeover offer for South Africa’s Adcock Ingram by 1.6% to ZAR12.8bn ($1.23bn), it says. The Chilean’s offer is up from ZAR12.6bn and comes as it faces competition from South African conglomerate Bidvest, who has increased its holding in Adcock to 6.8%. CFR’s bid comes at ZAR74.50 per share, up from ZAR73.51, and contemplates ZAR6.4bn-ZAR8.2bn in cash, and ZAR4.6bn-ZAR6.3bn in CFR shares. CFR claimed the support of shareholders holding 53% of Adcock as of last month. It needs to reach 75% for success, and a pension fund holding 19% has come out against the deal. CFR says it has a $600m bridge loan ready to go from BBVA, Santander Chile, Bancolombia and Bank of America. Credit Suisse is advising CFR, with IMTrust providing an evaluation of Adcock shares. Deutsche Bank is advising Adcock, with JPMorgan providing a fairness opinion. The deal is expected to generate revenue and cost synergies of up to $440m, would see Adcock delisted from Johannesburg, where CFR would have a secondary listing. In addition to the bridge funds, CFR is preparing a $750m equity capital raise.
Hydro ABS Approaches Pricing
The Reventazon hydroelectric project sponsored by Costa Rica’s Instituto Costarricense de Electricidad (ICE) has opened bids from investors for a planned $415m cross-border corporate securitization of a project loan, according to people familiar with the plans. The 20-year senior secured RegD/RegS notes, issued by the Reventazon Finance Trust (RFT) entity, are backed by a 100% participation interest in a 20-year B-loan from the Inter-American Development Bank (IDB), according to ratings reports. Allocation of bids was expected to take place during the early part of this week, with settlement to take up to a month. The B-loan is part of the secured debt which finances the design, construction, future operation and maintenance of the 305.5 megawatt Reventazon hydroelectric power plant in Costa Rica. The project has been structured so that construction, operation, and other risks are covered by ICE. The notes begin amortizing in 2017, and benefit from a debt service reserve account equivalent to the next principal and interest payment due amount. BNP Paribas is managing the transaction, rated BBB minus/Baa3 and which was aiming to complete pricing this month. The total project cost is $1.4bn, according to the IDB, with funding also coming from a $475m equity contribution from ICE, a $200m IDB A-loan, $100m IFC loan and $218m in domestic bank debt, according to Moody’s. Reventazon is expected operational in 2016.
Aval Defines FO
Colombia’s Grupo Aval has set terms for what should be a COP2.41trn ($1.25bn) equity follow-on. The financial group plans to offer 1.86bn common shares at COP1,300 each. The common shares closed at COP1,280 Thursday. The issuer does not yet define the timing for the sale, though the price is typically set in Colombian ECM transactions immediately before the opening of the subscription period. Existing holders will be allowed to subscribe their rights, and are expected to make up a large part of the sale. This is seen as driving the issuer’s choice to not use the SEC process for which it registered earlier this year, and opt for a more easily completed local sale, in which the issuer has better control over price. Aval is funding a busy M&A agenda, having completed in April the purchase of BBVA’s Horizonte Colombian pension operation for $530m, and is working on closing the $411m purchase of Guatemala’s Reformador and the $646m purchase of BBVA Panama. Separately, Aval’s Banco de Bogota subsidiary is scheduled to complete a COP1.0trn follow-on of its own December 18. Aval is expected to use some of its proceeds to replace funds used to subscribe to the Banco de Bogota transaction.
Interbank Taps Domestic Market
Banco Internacional del Peru (Interbank) has sold $50m in subordinated bonds in Peru’s local market, according to people familiar with the sale. The transaction was upsized from $25m to $50m. The 10-year bonds pay 7.50%. Interbank’s capital markets arm led the deal, rated AA/AA on a national scale.
Bahamas Decides to Wait
After finishing fixed-income investor meetings this month, Bahamas has decided to wait on its international bond plans, according to a finance ministry spokesperson. “From our point of view, feedback was positive but we took the decision to start investor meetings early and want to issue in 2014,” says spokesperson. The sovereign tends to issue every 4-5 years, but is under no funding pressure to issue. While Bahamas would consider a similar size and tenor to its last bond transaction, it would also consider any tenor between 10 and 30 years. The A3/A minus borrower sold $300m in 2029 bonds at a yield of 7.0% in 2009, while getting $400m in orders. The 2029 bonds were seen trading to yield 5.75% last week. JPMorgan and RBC managed the meetings.
Axtel Progresses in Step-Up Exchange
Mexican telecommunications company Axtel has received acceptance from holders of $83m of the 7.625% 2017 notes it is targeting in an exchange as of the early deadline, it says. In an offer launched last month, Axtel is offering new 2020 step-up bonds to holders of the 2017s and its 9.000% 2019s. It is offering holders of the $133m outstanding in 2017s $985 per $1,000 principal before the December 6 early deadline and $910 after. Accepting holders of the $135m outstanding in 2019s would get $875 per $1,000 principal through the early deadline and $800m after. Axtel does not give any indications of results from holders of the 2019s. The full offer expires December 20. The total amount in the exchange and new sale is capped at $146m. Axtel issued $249m in the 2020s in an exchange completed in February, also targeting holders of the 2017s and 2019s in a addition to peso debt.