Ternium’s agreement to acquire a BRL5.03bn ($2.7bn) stake in Brazil’s Usinas Siderurgicas de Minas Gerais (Usiminas) has left analysts scratching their heads. The global steelmaker will pay BRL36.00 per share for 139.7m common shares, or 27.7%, in a transaction seen as expensive. The price compares to a BRL19.70 previous closing price, and represents an enterprise value of 25x 2012 Ebitda. “Typically, Ternium has paid reasonable multiples of 6x in previous M&A transactions,” Luis Fornari, analyst at Barclays, tells LatinFinance. Usiminas’ stock trades at roughly a 50% premium to similar companies at an EV/2012 Ebitda of 10x. At these new levels, Fornari says, many investors are trying to understand Ternium’s reasoning. Ternium officials told analysts that access to the Brazilian market was a key motivation as well as the possibility of joint iron ore investments with Usiminas. Ternium’s interest in slab production in Brazil may also be misguided. Exporting slabs from Brazil is not profitable, says Fornari, and the domestic market is already well supplied. In the deal, Ternium acquires 84.7m common shares, its Siderar unit acquires 30m and its TenarisConfab unit acquires 25m. The three are buying the shares from Grupo Votorantim and Camargo Correa – both of which had been seeking an exit – and from the Caixa dos Empregados Usiminas, the company’s pension fund. Ternium and Siderar will finance their BRL4.1bn portion through cash on hand and debt, Ternium says, without offering further details. Officials at Ternium and Usiminas could not be immediately reached for comment regarding financing details or advisors on the deal. The deal brings Ternium into the controlling block, it says, of which Japan’s Nippon Steel holds 46.1%, Ternium 43.3% and the employee pension fund 10.6%. Nippon Steel has also raised its stake in the company by purchasing 8.5m common shares from the employees’ pension fund, Ternium says. Usiminas shares have climbed of late as Brazil’s Companhia
Category: Regions
Axtel Sees Rating Reductions
Mexican telecommunications company Axtel has had its ratings lowered by S&P and Moody’s, according to each agency. S&P dropped its corporate credit rating to B from B+. It points to competition and marginal revenue growth, as well as the expectation that Axtel will continue seeing free operating cash flow deficits due to its capital expenditure program, as part of the rationale behind the reduction. The outlook is stable. Moody’s, meanwhile, downgraded Axtel to Caa1 from B3. Moody’s notes that Axtel faces a challenging competitive environment and a tight liquidity position. The outlook is negative.
Isagen Gets I-Grade Mark from S&P
S&P has assigned a BBB minus rating to Colombia’s Isagen, it says. The agency notes the power generation company’s sound financial metrics, strong competitive position and prudent debt management. It also highlights Colombia’s favorable institutional and regulatory frameworks, as well as likely government support in the event of financial distress. The outlook is stable. Isagen has yet to issue in the international bond markets, but has said it would like to make an approximately $500m debut likely in 2012.
Petrobras to Engage European Accounts
Petrobras will start fixed-income investor meetings in Europe this week, joining a string of other EM issuers testing sentiment for potential international deals in December. This comes at a time when concerns over the Continent’s debt crisis continue to intensify, making some borrowers believe that they perhaps should quickly tap funding before the situation worsens rather than wait for the traditional January rush. Still, the Brazilian oil company faces tough conditions in what is the epicenter of global volatility these days, though it may be able to garner interest from European accounts seeking high quality EM names and diversification away from credits at home. Should investors be receptive, Petrobras may well move ahead with what will be debut in euros and sterling, following in the wake of a similar and successful dual-tranche offering sold by Mexican telecom America Movil earlier this year. However, it remains a matter for debate whether Petrobras is willing to pay the price for diversifying its funding base at time when European issuers have been seeing new issue premiums in the 40-50bp range. That is well above the 10-15bp maximum Petrobras CFO Almir Barbassa told LatinFinance he was willing to pay. Still AMX faced similar stumbling blocks and was able to achieve satisfactory pricing by focusing instead on relative value, looking at where AMX historically traded against Europeans peers and trying to price inside those levels. Petrobras management is splitting into 3 teams and has mandated BB Securities, Bradesco, Credit Agricole, Deutsche Bank, HSBC and Santander to help engage with the European buyside. It will be in Paris and the Netherlands on Monday, in London, Edinburgh and Switzerland on Tuesday and in Germany and London again on Wednesday.
Rabobank Set to Sell Chilean Bond
Dutch bank Rabobank is looking to sell UF2.5m ($105m) in 5-year bullet bonds in the Chilean market on November 30. The deal is expected to have a UF-denominated and a peso-denominated tranche. A third, US dollar-based tranche was initially included but isn’t seeing the demand, says a person familiar with the sale. The UF tranche is expected to have a 3.05% coupon, and the peso tranche a 6.05% coupon. Proceeds will be used to fund operations. The bond is rated AAA by Feller and Fitch. Celfin Capital and Deutsche Bank are managing.
Sura Gets Support on Vital Equity Funding
Grupo de Inversiones Suramericana’s (GrupoSura) COP3.5trn ($1.8bn) equity follow-on last week helped it complete the funding requirements for its acquisition of ING’s LatAm assets in what the company described as Colombia’s largest equity raise by a non-government entity. But tough market conditions have meant that the issuer required the support of a number of co-investors to raise the desired equity financing and stave off any threats to its investment grade rating. This includes Switzerland’s UBS which bought 30m of the shares for a total of COP975bn ($502m), or about a quarter of the entire offering. “An agreement with UBS was already in place, as they were acting as financial advisor in the negotiation process,” a Suramericana spokeswoman says. She adds that the follow-on was done during challenging conditions, but the issuer is satisfied with the result. Indeed equity financing was seen as the best way to ease pressure being exerted by the ratings agencies like S&P, which placed the company’s BBB minus rating on creditwatch earlier this year after noting that incremental indebtedness from the acquisition could impact GrupoSura’s credit profile. Last week GrupoSura also announced that Bancolombia, which is part of the conglomerate’s investment portfolio, was undergoing the required analysis and internal approvals to become a co-investor as well. Bancolombia, along with Santander, led the transaction, while UBS was one of the original acquisition bridge lenders along with BBVA, Deutsche Bank, HSBC and JPMorgan. This follows similar moves by the IFC and Sociedades Bolivar which respectively took 5% and 10% stakes in the pension and insurance business acquired from ING for $3.76bn.Local brokerage Bolsa y Renta calculates that after minority stake investments, the FO and cash on hand, GrupoSura needs to raise just COP1trn ($500m) in debt, though Bancolombia’s contribution may well cover a large portion of that. “We believe that it shouldn’t lose its investment grad
Vitro Shareholders Push On with Restructuring
Shareholders of troubled glass company Vitro have approved its controversial $3.6bn restructuring plan, a step in forcing bondholders to accept the company’s terms. The borrower said that all shareholders approved the proposal. The proposed restructuring of $3.6bn in debt has angered bondholders after a Mexican judge said Vitro could include $1.9bn in intercompany debt as part of the bondholder tally, allowing it to claim that 51% of creditors had agreed to the restructuring terms. The shareholder approval follows quickly after a court-appointed arbitrator asked for an extension in Vitro’s restructuring. The proposal includes $814.7m in new 2019 bonds, a fee of up to $32.7m and mandatory convertible debt of $95.8m. JPMorgan has estimated that creditors who accept the deal may recover between 48 and 60 cents on the dollar, depending on the level of debt-holder support. The situation has also spooked analysts who argue that Vitro’s success could translate into a loss for other corporate issuers in the region. “From my experience, once you have a rotten apple in the barrel, this spreads,” economist Arturo Porzecanski told investors in a conference call this week. “Vitro is the rogue debtor corporation of the decade.” He pointed out that so far there is no indication that the pricing, structure or covenant language of new deals reflects the Vitro restructuring but, he said, this could all change if the company gets away with its plans.
VW Bank Nears MXP Debut
Mexico’s Volkswagen Bank is close to issuing a MXP 1bn ($71m) domestic bond debut. The 3-year floating rate notes have a tentative issuance date of December 1, if market conditions permit. The bonds, rated AAA on a national scale, will be guaranteed by parent Volkswagen Financial Services. HSBC and Santander are managing the transaction.
El Salvador to Receive $50m IDB Loan
El Salvador is set to receive a $50m Inter-American Development Bank loan for natural disaster infrastructure and preparation, as well as living condition improvements. The 25-year loan has a grace period of 5 years and an interest rate based on Libor. In September last year, the IDB approved a $200m loan to help strengthen El Salvador’s financial sector as part of an about $450m package.
Colombia Raises Rates
Colombia’s central bank has chosen to raise the benchmark interest rates by 25bp to 4.75%. The bank cites continuing credit expansion in Colombia and higher than expected inflation. European economic activity is slowing, but it isn’t happening at a disorderly pace, while the US economy continues to grow, it notes.