Peru will lose around 0.3% of real GDP growth this year, according to Goldman Sachs, which cites President Alan García, who also said that real GDP growth should hover at around 7.6% this year, versus an estimate of 7.9%-8.0% before the earthquake. The fiscal cost of reconstruction and social assistance to the affected by the earthquake remains unclear. “At 0.3%-0.4% of GDP, the costs of reconstruction appear to be moderate,” says Goldman. “Given a robust fiscal situation, we believe that the government should be able to absorb such cost, with no major financial implications,” it adds.
Category: Regions
Posted inDaily Brief
GE Capital Beefs Up LatAm Lending
GE Capital is moving further into LatAm by starting up a structured lending group for the region. While GE has been involved in Mexico for several years working on commercial finance and leasing, the new effort will look to build up loan assets through origination and participation in syndications and keep them on the balance sheet. Target countries include Brazil and Mexico. To help the effort, GE Capital has hired Inwha Huh, former director at Deutsche Bank’s global trade finance and distribution group. She is expected to work out of New York.
Posted inDaily Brief
Mexico Hurricane Damage Limited Thus Far
The economic impact of Hurricane Dean following its first landing on the Mexican coast has been relatively limited, though on its second landing, things could worsen. With no damage to the Cancun tourist zone and no deaths, losses were minimal, as far as Caribbean hurricanes go, though Pemex operations in the region remain closed, causing an estimated loss of $150m in exports for the oil giant, according to a Citi report that cites company projections. On Wednesday, Hurricane Dean was headed for Campeche Bay and Veracruz, with expectations that it will gain strength. Potential impacts of that are still unclear.
Posted inDaily Brief
Colombia Seen Hiking Rates to 9.50%
The Colombian Central Bank will likely respond to the deteriorating inflation picture with a 25bp rate hike in its monthly meeting this Friday, according to analysts. With worsening global conditions affecting the country’s currency and inflation – the peso weakened 10% in August – the central bank should move to hike rates to 9.50%, which, with inflation at 5.20% in August, would leave real rates above 4.0%, according to BBVA. Colombia’s own domestic picture has improved, thanks to responsible management of the monetary policy, says the shop. But not raising rates would leave the currency more vulnerable and make it more difficult to reach the 2007-2008 inflation target of 3.50%-4.50%.
Posted inDaily Brief
Éxito Marks Colombia GDR Comeback
Colombian retailer Almacenes Éxito has raised $392m in a 144a/Reg S privately placed global depositary receipt program in the US. It became the first Colombian company to do a primary offer outside its home market in 10 years, according to JPMorgan, which is managing Éxito’s GDR program. “After a 10-year period, Colombian companies are once again looking to access capital markets outside of their borders,” says Claudine Gallagher, global head of JPMorgan’s depositary receipts group. DRs represent ownership in foreign corporations and typically trade on the US and/or European markets and settle in accordance with those market standards. Éxito’s stores sell consumer products, fresh products, apparel, home products and entertainment items.
Posted inDaily Brief
China to Set up Costa Rica Office
China, which is duking it out with Taiwan for control in Central America, plans to set up a representative office in Costa Rica by the end of 2007. With a presence on the ground, China’s Council for the Promotion of International Trade aims to boost trade relations between China and Costa Rica, as well as in communications between entrepreneurs of the two countries. A Chinese commercial delegation is in San Jose this week. The two countries established diplomatic ties June 1. According to China’s General Administration of Customs, trade between China and Costa Rica was $2.1bn in 2006, up 87% from 2005. Volume rose 65% rise in the first half of this year, according to the Chinese government’s website.
Posted inDaily Brief
Wrapped Deals Widen On Monoline Concerns
Investors and bankers in Mexico say a good part of the widening in spreads on structured bonds that are insured by monoline wraps is due to investor concern over the deteriorating credit quality of the insurers themselves. Issues by Sofoles Su Casita, Patrimonio and GMAC that have come to market in the past six months are feeling the impact of contagion from the US mortgage crisis as well as the stigma of having bonds insured by wrappers like MBIA and Ambac, says a local banker. Su Casita’s March cross-border issuance of $232m in RMBS, the senior class of which was wrapped to obtain a AAA rating, has widened out to around 40bp over Libor from 23bp at issuance, according to a banker away from the deal. GMAC’s $121m AAA July deal has widened to 63bp from 56bp over UDI, and Patrimonio’s Aaa July MXP400m issuance in RMBS was trading 60bp wide of the 10-year MBono, from 46bp over at issuance. A monoline executive says that while some locals may see the widening as a result of concerns over the wraps, pricing in these very thin markets is not necessarily indicative.
Posted inDaily Brief
Panama Growth Seen Exceeding 8.1%
In an upbeat assessment of Panama, Moody’s predicts growth will this year exceed the 8.1% seen in 2006. “The country’s Ba1 foreign currency government bond rating and stable outlook are supported by a dynamic service sector that has served to shield the economy from the volatility observed in other countries in the region, and by a favorable debt profile,” says the agency. “The strong performance of services’ exports (including tourism), domestic consumption and investment activity, in preparation of the Panama Canal expansion, are key contributors to such growth,” adds Moody’s vp Alessandra Alecci. However, she warns that a severe downturn in global conditions would pose significant challenges. The non-financial public sector deficit last year posted its first surplus in 10 years, driven by revenues benefiting from the 2005 tax reform. Total public sector debt to GDP dropped to 61% in 2006, down from 70% in 2004. “While the ratio should further decline in 2007, in nominal terms, the stock should remain constant,” predicts Alecci, adding that social and infrastructure expenditures take priority over aggressively reducing the debt burden.
Posted inDaily Brief
JPM Sells Strength, Cuts Colombia Exposure
JPMorgan this week cut its exposure to Colombia debt to underweight from neutral as part of an overall reduction in EM fixed income investment. It sold a million sovereign 2024s at 112. Colombia looks rich relative to BB credits and year-to-date it has outperformed the EMBIG (+0.7%ytd versus -1.2% return in the EMBIG). “Colombia’s fundamentals are strong but less robust than other Latin peers as it will post a current account deficit of around 3% of GDP,” says JPM. “Moreover, external accounts are exposed to a potential decline in commodity prices and the likely reduction of FDI inflows in a context of tighter global liquidity,” it adds. Colombia will also be impacted by rising borrowing costs since a large fiscal deficit will force the government to rely heavily on the domestic and external markets. Overall, JPM took advantage of a rebound in EM to cut exposure in its EMBIG model portfolio. “While we see the EMBIG above 200bp as cheap on a fundamental basis, we reckon that spreads can widen further before conditions in global financial markets stabilize and the EMBIG drops to below this level,” says JPM.
Posted inDaily Brief
Durango Delayed, Again
Mexico’s Corporacion Durango, an integrated paper and packaging outfit, has for the third time extended the deadline on a cash tender offer for any and all of its series B step up rate senior secured guaranteed notes due 2012. By August 17, the company had collected $371m in bonds, or 86% of the outstanding. The new deadline is August 24. Merrill Lynch is dealer manager.