Digicel Group Limited (DGL) owner Denis O’Brien allocated to himself 26% of his company’s cheaply priced $775m in 10.5% senior notes due 2018, the company says. The rest, plus cash on hand, was used to buy 100% of Digicel Pacific Limited (DPL) for $825m. O’Brien owns an 84% stake in DPL. “$200m of the $775m issuance will be purchased in a concurrent private placement with Mr O’Brien that will close simultaneously with the acquisition of DPL,” says Digicel. Digicel priced the 8-year NC4 bond at par to yield 10.50%, or T+715bp, through initial whispers of 10.75% area. Even after the tightening, buyers say the issue was cheap by 50bp-60bp. The bond was heard up 3pts Wednesday, confirming talk that it was generously priced for buyers. Investors say orders were scaled back significantly as the book soared above $6bn and O’Brien took the lion’s share. Despite the large oversubscription, the bond is rated Caa1/CCC+, implying a very high probability of default. The bond settles March 22 and the acquisition of DPL by Bermuda-incorporated DGL is expected to close April 1.
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Magnesita Kicks off HY Roadshow
Magnesita Refratarios, the Brazil-based manufacturer of refractories, is on the road today in London with a 10 non-call 5 bond issue to refinance debt. There is no size stated, but Moody’s has assigned a B1 grade to a $300m senior unsecured guaranteed notes issue due 2020. A mid-to-high 8% handle was heard Wednesday from an investor looking at the deal. The tour is in London also Friday, moving to the US Monday-Wednesday. The issuer is Germany’s Rearden G Holdings Eins and the deal is jointly, irrevocably and unconditionally guaranteed by Magnesita and all major subsidiaries. Net proceeds will be used to prepay existing secured debt incurred through the 2008 acquisition of Germany’s LWB for $938m, including $542m in assumed debt. In February, Magnesita renegotiated the terms and conditions of some BRL133m in unsecured loans, cutting the rate and extending final maturity from 2013 to 2015. Moody’s notes the company’s strong market position as a leading supplier of refractories supported by longstanding client relationships and significant import barriers in Brazil. “The Brazilian operations have a high level of vertical integration, including sizeable prime-quality mineral reserves, substantial electricity self-sufficiency and efficient logistics,” it adds. BB Securities, Bradesco, Itau and JPMorgan are the leads.
Brazil Miner Lifts Euro Financing Hopes
Vale’s success in the euro market this week fuels expectations of more LatAm bond deals to come from Europe. “This deal shows that the euro market is open and there’s a very attractive basis swap,” says a banker on Vale. The Brazil-based miner raised EUR750m in 8-year money but could easily have secured double that for a 10-year, say bankers on the trade. An order book exceeding EUR8bn highlights robust appetite for LatAm credit from an investor base looking to diversify. However, demand will likely be limited to larger blue chips. “Europe is still a relatively conservative investor base,” says the banker who led Vale, adding that there is a clear OECD bias. Chile and Mexico are OECD members, and while the group says it is ready to start talks with Brazil whenever it is ready, the biggest LatAm economy is still excluded. Colombia is another longer term possible member. “You still need to be careful what names you bring,” says a LatAm DCM official, speaking of euro appetite for LatAm corporates. Candidates include Gerdau, America Movil and quasi-sovereigns like BNDES. Petrobras as is also a possibility, though bankers say it is consumed by a $40bn-$60bn capitalization plan. “The sovereign is a good candidate to issue,” says another banker, speaking of Brazil.
Vale Plants Euro Benchmark
European investors clamored for a piece of Vale’s debut euro issue, despite pricing well through initial expectations. Orders for a EUR750m 8-year priced at 140bp over midswaps exceeded EUR8bn from almost 500 accounts, say bankers running the trade. A level around 160bp was initially expected, then squeezed to 150bp area whispers and 140bp-145bp guidance. Despite such a huge book, bankers working on the deal say that pushing through a 140bp spread would have stifled participation from the high quality investors Vale targeted. “Vale was looking for a tight benchmark and to develop a new investor base,” says a banker running the deal. “They wanted to leave something on the table to engage investors properly,” he adds. Bankers say that while a bigger deal was possible, Vale aimed to provide enough liquidity to make a benchmark, but does not need extra cash. The 2018 maturity handily plugs a gap on the curve, bankers note. The Brazil-based iron ore producer priced at 99.564 with a 4.375% coupon to yield 4.441%, or 160.3bp over Bunds. The Brazil sovereign was 115bp-120bp over midswaps, while comp Anglo American was 120bp-125bp at the time, says a banker on it. “It’s basically zero new issue premium to where Vale trades,” the official adds, pegging the Vale 2019 at around 150bp over midswaps. “Investors have treated Vale here as a mainstream asset, not an EM asset,” he adds, noting the high grade mining comps for the trade. Another bookrunner pegged Xstrata’s 2017 at 165bp, making Vale 25bp cheaper for an extra year’s maturity. There were no secondary levels late Wednesday, but all eyes are on trading performance. High grade real money and private banks were the main buyers, more than 90% of them in Europe. Bankers note a small but interesting participation from Asia, reflecting name recognition there. They say lack of US orders was down to tight pricing versus dollars. BNP Paribas, Credit Agricole, HSBC and Santander were joint bookrunners. Vale, which is rated Baa2/BBB+
Renova IPO Fails to Launch
Renova, the Brazilian renewable energy specialist, failed to price its IPO Wednesday, the scheduled date for the deal. However, it will continue to see if it can raise the funds in the coming days by working with investors and continuing bookbuilding, say bankers on it. Investor choosiness and difficult market conditions, including a high profile scaling down of OSX’s stock offering, are to blame for the lack of initial success, note executives close to the process. Among the chief company-specific challenges is relatively small size of the float, threatened with further shrinkage as investors push for a lower valuation. It also suffers from having a relatively complex business, which led some investors to ignore the prospectus. Renova was looking sell 24.7m base shares and 3.9m greenshoe units at BRL19.00-BRL25.00. This was pushed down to BRL13.00-BRL17.00 area, according to buysider estimates. If it succeeds at pricing at BRL15.00, the company could have a float of BRL430m. However, investor demand for the stock was apparently below that level and at a point where the company appears uncomfortable selling at, according to people watching the process. If it fails to price in coming days, Renova will likely retreat for the time being and consider returning months or years later. Santander and BofA-Merrill are leading the deal.
Investors Torpedo Batista Shipping Float
Eike Batista’s oil services and ship building unit OSX has raised 62% less than targeted through its IPO, a deal widely expected to be one of the biggest LatAm equity issues of 2010. Investors appeared unanimous in their refusal to buy into the Brazilian company, whose earnings potential is untested. OSX priced 3.06m shares plus 459,000 greenshoe units at BRL800 each to raise a total BRL2.82bn. That is 62% less than the BRL7.38bn it would have raised had it maintained the original offering size of 5.51m base shares plus 827,000 greenshoe units and priced at the originally proposed BRL1,167 midpoint. “The market is difficult and investors didn’t understand the value proposition of the company,” complains a banker leading the deal. “They didn’t want to assign value to the upside,” he adds. LatAm equity investors say they will not pay up front for unrealized value. OSX has not generated positive Ebitda since its inception, according to its prospectus. In an effort to avoid dilution as the deal headed towards a lower price, Batista, eighth richest man in the world according to Forbes, opted to refile late Tuesday. He did so at a lower price point and reduced offering size. Evan after the reduction, OSX is among the largest IPOs Brazil is likely to see this year. It also represents a coup for Batista, who now owns 5 publicly listed companies. Credit Suisse, Itau BBA, Bradesco BBI, BTG Pactual and Morgan Stanley led the trade.
2010 Capital Introduction Series
2010 Capital Introduction Series 2nd Latin America Mid-East Investors ForumApril 26th-27th, 2010Abu Dhabi, United Arab Emirates Investable assets in the GCC are projected to reach $3.4 trillion in 2012, up […]
Citi Ups Stake in Chile Investment Firm
Citigroup has exercised an option to acquire an 8.52% stake in Chile-based investment firm LQ Inversiones Financieras from local business conglomerate Quinenco, for UF12.9m ($519.4m). The transaction, which closes May 3, boosts Citi’s stake in LQ to 50%. Bankers close to the companies say that the deal is not expected to have any material impact on Quinenco, as the option was agreed upon about 2 years ago. Quinenco, which has holdings in telecom, financial services, manufacturing and food and beverage industries, is 83% owned by the Luksic family, which is rumored to be among the parties interested in acquiring the remaining 11% stake in LAN airlines owned by an investment vehicle controlled by Chilean president Sebastian Pinera. A sale of the stake is expected by April 30. Before the earthquake that shook the country February 27, a sale was supposed to happen by March 11, when Pinera took over as president.
Brazil Expected to Start Hiking Rates
Market consensus points to Brazil’s Copom leaving its Selic rate unchanged until April, but JPMorgan forecasts it will hike its rate today by 50bp. The bank says that growth and inflation indicators will send signals that the tightening cycle is already overdue, with tight utilization rates and increasing inflation expectations putting the target in danger. Goldman Sachs agrees that there will be a 50bp hike today, taking the rate to 9.25%. “In all, we believe that the tightening cycle will amount to 375bp, with Copom raising Selic to 12.50% by October 2010,” the shop says. Morgan Stanley, in line with consensus, expects a first hike in April, although it does not rule out tightening today. “A front-loaded path could make it easier for the Copom to avoid changing policy rates too close to the October presidential elections,” it says.
Marfrig Seeks Bond Covenant Waivers
Marfrig says it is initiating a consent solicitation to holders of $375m worth of 9.625% coupon 2016 bonds. The Brazilian meatpacker wants to amend restrictive covenants and waive past non-compliance with other covenants. The company claims that its acquisitive growth and diversification strategy were hindered by the covenants, and it seeks operational flexibility. Marfrig is offering holders $30 per $1,000 principal amount of notes if they accept by March 25. Credit Suisse is handling the process.