Neoenergia, the Brazilian integrated power company, is scanning the horizon for ways to deploy a BRL2.5bn warchest, says Erik Breyer, CFO. “We are looking for opportunities to invest in the [Brazilian] power sector,” he says. Breyer notes it is the company’s standard practice to look at any and all investment opportunities, whether greenfield or acquisition of companies and operating assets. Neoenergia has been proactively looking to invest aggressively in the past 2 years, during which it has bought greenfield concessions. With debt of around BRL5.0bn, all denominated in BRL, LTM Ebitda of BRL2.6bn and cash of BRL2.5bn, Neoenergia’s net debt to Ebitda stands at just below 1x, says Breyer. That allows the company to lever up substantially should it need to for a large acquisition. “We have the cash and the balance sheet [to make investments],” says Breyer. Among power assets located in the Northeast of Brazil rumored to be candidates for sale are Equatorial’s Cemar and Geranorte. Executives at Equatorial decline to state whether they are sellers, and emphasize their interest in acquiring and managing power assets in Brazil. Neoenergia, which is owned by Iberdrola (39%), Previ (49%) and Banco do Brasil (12%), controls the larger Northeastern power assets Cosern, Celpe and Coelba, as well as assets in 5 other states. Sector executives are unanimous in noting there are several live discussions in the sector that will drive a substantial consolidation, though bankers complain there is too much talk and not enough trigger pulling. “The deals will happen, but at the pace of the utilities, not bankers,” says Breyer. The CFO expects to begin accessing the local bond market in 2010 to extend maturities on debt, provided conditions are welcoming. While he sees no urgent need to tap – the bulk of debentures begin maturing in 2012 – the company is focused on managing the yield curve and spacing to avoid clumps of maturing debt.
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Urbi Breaches Local Covenant
Mexico’s Urbi has breached a leverage covenant on MXP1.06bn in local bonds and convened a bondholder meeting for November 20. Moody’s cut the national scale senior unsecured debt rating to Baa1.mx from A3.mx and keeps it on review for possible downgrade. The Ba3 global scale senior unsecured debt rating was also put on downgrade review. The company was required to keep its ratio of debt to earnings before interest (excluding capitalized interest), taxes, depreciation and amortization (including deferred financing fees) below 2x. “Urbi has 40 days to cure this breach, and thus the bondholders have not declared a default. The company expects to either change or waive debt covenants,” says Moody’s. Urbi is a publicly traded, integrated homebuilder engaged in development, construction, marketing and sale of affordable housing in Mexico. The firm reported assets of approximately MXP33bn and equity of approximately MXP16.5bn September 30. “The basis of our business strategy is prudence and a higher liquidity position for the company, which is backed with a track record of profitable and consistent operational performance,” says Urbi CFO Selene Avalos. “We have versatile funding options, which reflect a gradual improvement of the financial market conditions,” she adds.
Light Plans Share Buyback
Brazilian power generation and distribution company Light is planning on buying back up to 6.6m shares for its employee stock options plan. The amount represents 6.73% of the company’s public float and 3.23% of the company’s total ordinary share count. At Light’s Monday closing price of BRL24.79, the buyback would be valued at BRL163.6m. Light shares closed up 0.65% Monday. Ativa, BTG Pactual, Credit Suisse, Morgan Stanley and JPMorgan are the brokers handling the repurchase.
ISA Gets Peru Project, Aims for More
Colombia energy distribution company ISA, in partnership with Bogota’s EEB, has clinched a 30-year concession for the design, construction and operation of the transmission line between the cities of Lima and Trujillo, for which it offered an annual service rate of $25.8m, according to Peru’s ministry of energy and mines. ISA has a 60% stake and EEB 40%. The estimated cost of developing the project is $167.5m and the company is in talks with BCP for a $70m loan to help finance the project, says an ISA spokeswoman. She also says the company is also competing for a $500m concession in Guatemala – for which a winner will be announced November 27 – and considering competing for the 580km long Chilca Marcona Caraveli project in Peru. The latter is expected to require an investment of about $180m. To raise funds for these projects, ISA has announced it plans to issue some 32m shares in the local market with which it could raise about $185m. In addition, in April the company sold COP209.5bn in bonds.
Telesp Eyes Local Bonds to Pay for GVT
Brazil’s Telesp is planning to issue promissory notes for as much as BRL6bn to acquire 100% of GVT, it says in a filing with the local securities regulator. In October Telesp offered BRL48 per share to acquire the telecom company, topping Vivendi’s BRL42 per share bid. Telesp says its board has authorized issuing up to 600 promissory notes worth up to BRL10m each. The expected maturity of the notes is not stated, but Telesp says it would pay 109% of the DI rate at maturity.
Braskem Snags Pemex Project
Brazil petrochemical company Braskem and Mexican minority partner Idesa have been awarded Pemex Gas’ $2.5bn Etileno XXI project. A Braskem spokeswoman says that the company will finance the project with 70% debt and 30% equity, but that this is not yet confirmed, as the final structure of the investment is still being discussed. She adds that Braskem is considering welcoming another company into its consortium. It plans to be the majority owner of the project, with a stake of at least 60%, while Idesa would hold about 20%. The project entails the acquisition of ethane at competitive prices for 20 years, construction of a cracker to produce 1m tons of ethane a year for Pemex, and the construction of 3 polyethylene plants, according to Braskem.
DR Secures IMF Line
The IMF has approved a $1.7bn equivalent 28-month stand-by arrangement for the Dominican Republic to support its strategy to cope with the adverse effects of the global economic environment. The government aims to pursue short-term countercyclical policies; strengthen medium-term sustainability; reduce vulnerabilities exposed during the global crisis; and lay the foundations for a gradual recovery and sustained growth, says the fund. The stand-by is designed to bolster confidence in the policy framework and catalyze additional financing from other multilaterals. “It will be important that the authorities follow through with their fiscal consolidation plan and structural reform agenda critical for medium-term sustainability, says Murilo Portugal, IMF deputy managing director. “The planned fiscal stimulus will focus on high-return investment projects and current expenditures to strengthen social safety nets,” he adds. According to the fund, the Dominican banking system remains liquid, solvent, and profitable, despite the global credit crunch. The authorities continue to monitor the impact of the economic slowdown, and plan to advance the implementation of risk-based consolidated bank supervision and regulation, it adds.
Panama Inches Towards S&P High Grade
S&P has revised the outlook on Panama’s BB+ rating to positive from stable following fiscal reform and resilience to global crisis. “The positive outlook reflects Panama’s solid growth prospects as well as an improving fiscal outlook that could strengthen the sovereign’s credit profile sufficiently to merit an investment-grade rating,” says S&P analyst Roberto Sifon Arevalo. Tax reform is expected to boost revenues by about 0.75% of GDP and S&P notes commitment to improve revenue generating capacity in order to sustain an ambitious program of public investment without incurring large fiscal deficits. The agency also highlights the fact that Panama is one of the few countries in the region to enjoy positive GDP growth this year, likely around 2.3%. It expects GDP growth to rise to around 4.5% in 2010 and sees support from the canal expansion. The general government deficit is expected to be 2.2% of GDP in 2009 and may decline to 1.8% of GDP in 2010, says S&P. This is expected to contribute to a public sector deficit of 1.8% of GDP in 2009 and 1.4% in 2010, below the maximum 2.5% allowed. S&P predicts general government debt will remain at 40% of GDP in 2009 and 2010.
Santander Chile Squeezes Dollar Market
Santander Chile reigned in pricing on a $500m bond, locking in UST+157bp well inside initial whispers of 175bp area and tight to 160bp area guidance. Demand for the issuer’s first sale in 4 years reached about $2bn, according to bankers managing it. The bank priced the 2012 bond at 99.855 with a 2.875% coupon to yield 2.926%, or UST plus 157bp. The Aa3/A+ deal was heard trading at flat to up 0.125 points in the gray Monday afternoon. Despite the tightening, investors say there was still some incentive to participate. “There is a pickup relative to some AA minus level comparables,” says a New York-based EM investor, offering Nordea as an example. The Swedish bank rated AA minus sold $500m in 3-year bonds last week to yield UST+120bp, as part of a $2bn sale. Santander Chile’s existing dollar bonds are illiquid, investors say, and less useful as comps. Scarcity value for the financial sector may have also helped. The issuer chose the 3-year maturity as it was a good match for its funding needs and the most attractive point on the curve for swapping into CLP, says a banker on the deal. Deutsche Bank, JPMorgan and Santander managed the sale. Proceeds from the bond issue are earmarked for general corporate purposes. Largely able to fund itself in the domestic market, Santander Chile’s last dollar foray was in 2004, when it issued $400m in a 2009 at Libor+35bp and $300m in a 5.375% of 2014 via Deutsche and Santander.
Caribbean Telecom Seen Wide of 10%
Barbados-based communications network operator Columbus International is expected to see a yield wide of 10% on a new $450m bond, which is roadshowing this week, according to investors looking at it. The B/B2 issuer is expected to price the 2014 deal Thursday or Friday. Jamaican telecom Digicel (B minus) saw a 12% yield on a $250m sale in June, though it is a cellular operator – as opposed to Columbus’ broadband and IP cables business – and was done during a more challenging market. BB/BB minus Axtel (priced to yield 9.00%) and B+/BB-/B1 Alestra (11.75%) offer more recent comparables. “They [Columbus] have the first mover advantage in a market with a huge barrier to entry,” says an investor eyeing the deal. He notes that risks include those of the Caribbean economies where it operates, as well as use of proceeds. Most proceeds are marked for debt repayment, but investors note that Columbus also plans to pay dividends, redeem preferred shares, and pay PIK interest on preferred shares. A $450m sale from a company posting $200m in revenues is also a concern, investors note, though the opportunities for long-term growth over the network are attractive. “Although the company is expected to become free cashflow positive in the short to medium term, this will depend on its ability to grow revenues, sustain margins and reduce capex,” Moody’s says. The issuer’s Columbus Networks unit is a 94% owner and principal operator of the Americas Region Caribbean Optical-ring System providing broadband and IP capacity to telecoms cable companies, and internet providers, and linking the Caribbean and Central America with North and South America. Citi, RBC and Standard Bank are managing the sale.