Brazil Kisses IMF Debt Goodbye
As promised, Brazil settled its $15.5 billion tab with the International Monetary Fund, two years ahead of schedule. The country expects the prepayment will save it $900 million in interest. The original repayment schedule called for a $7.03 billion installment this year and an $8.43 billion installment in 2007. Brazil borrowed heavily from the IMF between 1998-2002, although strong economic fundamentals have since provided extra cash for the government. The move is another feather in the cap of Brazil, which has received great praise for the savvy management of its debt. IMF Managing Director Rodrigo de Rato praised “the excellent track record of policy management by the Brazilian authorities.” The Brazilian government also intends to prepay its remaining $2.6 billion debt due to the Paris Club of government creditors. Treasury Secretary Joaquim Levy says prepayment of the Paris Club debt will save Brazil $100 million in interest.
The country has also been issuing other types of debt. Early in January, Brazil issued $1 billion in 2037 global bonds, priced at 295 basis points over comparable US Treasuries and yielding 7.557%. Brazil previously issued global bonds at the end of November, when it sold $500 million bonds due 2034. They were priced at 362.5 basis points over US Treasuries for a yield of 8.311%. The January deal was co-managed by Deutsche Bank and UBS.

Argentina Takes Cue From Brazil
Five years after its devastating default and devaluation, Argentina prepaid its International Monetary Fund debt with a single $9.6 billion payment. The country made the announcement shortly after Brazil’s decision to prepay its IMF debt late last year. Argentina’s final payment to the IMF was scheduled for 2008. Government officials said the move returns economic independence to Argentina, adding that the country plans to stock up on euros to replenish its foreign currency reserves, which stood at $18.5 billion after the repayment. IMF Managing Director Rodrigo de Rato said the IMF stands ready to assist Argentina again in the future if necessary.  

Buenos Aires Debt Deal
More than 93% of bondholders eligible to trade in $2.9 billion in defaulted Province of Buenos Aires bonds opted to exchange their 2010 notes for $2.3 billion in three new performing bonds ranging in duration from 12 to 30 years. The exchange by Argentina’s wealthiest province – which hadn’t made any payments on the debt since 2001 – won broader support than the federal government’s $103 billion debt restructuring last year, which only attracted 76% of debt holders. Citigroup was the global coordinator for the Buenos Aires deal.

Landmark Leasing Issues
Brazil’s Safra Leasing, a unit of Banco Safra, completed the country’s largest ever debenture offering with the issuance of     R$5 billion ($2.26 billion) in unsecured non-convertible debt due July 2015. The bonds’ annual interest rate is linked to the local interbank rate. Banco Safra de Investimentos handled the sale.
In addition, Brazil’s Unibanco Leasing issued R$2 billion ($855 million) in non-convertible debentures due in 2020 that also pay an annual interest rate linked to the local interbank rate. Brazilian companies sold more than R$41 billion in debentures in 2005, a record for corporate debt deals.

CVRD Issues Record Bond
The world’s largest iron-ore producer set a record for Brazilian corporate dollar debt with the January sale of $1 billion in investment grade bonds due in 2016 priced to yield 6.254%. Cia. Vale do Rio Doce, which last year became the first Brazilian corporate to win an investment grade rating, issued the debt to help fund its repurchase of up to $300 million of its 9% bonds due in 2013, thereby cutting the company’s borrowing costs. JP Morgan led the groundbreaking deal.

Panama Refinances Debt
As part of an ongoing liability management program, Panama sold $980 million in 20-year debt yielding 7.295%. Citigroup managed the transaction. The bond was meant to refinance three bond issues that the sovereign bought back in November 2005: a $449 million, 8.25% issue maturing in 2008; a $165 million, 9.625% issue maturing in 2011 and a $201 million, 10.75% deal due in 2020. The moves are part of a program to extend its maturities and lower its financing costs as the country’s economic fundamentals improve.

IPAB Lowers 2006 Load
Mexico’s government-run bank deposit protection institute IPAB bought back 10 billion pesos ($933 million) of bonds to reduce debt maturing in the second half of 2006. The institute issues savings protection bonds known as BPAs to help manage liabilities linked to the government’s $70 billion bank bailout in the mid-1990s.

Wal-Mart Buys Sonae in Brazil
The world’s biggest retailer Wal-Mart agreed to pay $757 million for Portuguese retailer Sonae’s supermarkets in Brazil, which will give the big box chain another 140 stores in the country. Wal-Mart is already Brazil’s third-largest retailer, although competition from Pão de Açúcar and France’s Carrefour is fierce. The company plans to keep Sonae store names like Nacional and Mercadorama.

Pemex Piles On More Debt
Mexican state-owned oil monopoly Petróleos Mexicanos issued $750 million in floating rate bonds maturing in 2012. The bonds carry a coupon of 60 basis points over Libor. Pemex plans to use the money to finance infrastructure projects. The issue was joint-led by HSBC and Morgan Stanley. Pemex was Latin America’s second-largest issuer of debt in 2005, selling some $7.4 billion in debt during the year, according to capital markets data provider Dealogic.

Ecuador Goes Shopping
The Andean country issued $650 million in bonds due in 2015 that carry a coupon of 9.375%. JP Morgan and Deutsche Bank managed the deal. Ecuador plans to use part of the proceeds to buy back some of its 2012 bonds, which carry a higher coupon of 12%. The government estimates that if it can repurchase as much as $650 million of the bonds – or about half of the 2012 notes in circulation – before June, then it will save $17 million a year in interest payments over five years. The move came as the country’s economy minister, Magdalena Barreiro, resigned at the end of 2005, after only four months in the post.

Peru Pays Back Japeco
Peru raised $500 million in December by reopening its 2025 global bond in a deal led by Citigroup, sole manager on the deal. The funds will be used – together with $238 million from the sale of local currency-denominated debt due in 2020 issued shortly before the global offering – to pay back the bulk of an $830 million loan from Japan Peru Oil, or Japeco. The loan stems from a pipeline Japeco built for Peru’s military-run government in the 1970s. 

Chávez Helps Argentina Again
Once again, Venezuela scooped up more Argentine bonds, buying another $766.1 million of Argentina’s dollar-denominated 2012 Boden notes in two separate deals arranged directly by the two countries’ finance and treasury officials. The purchases put Venezuela’s investment in Argentine sovereign debt during 2005 at well over $1 billion. Argentina hopes to raise more than $3 billion through new debt issues to help finance its prepayment of $9.6 billion in International Monetary Fund debt. Venezuela also offered to buy a large chunk of sovereign debt from Ecuador but ended up buying only $25 million in December. 

Calling Telecom Investors
The mobile unit of Telecom Argentina auctioned 700 million pesos ($235 million) in local currency bonds and $300 million of dollar-denominated bonds in its first debt offering since the company’s $599 million debt restructuring in 2004. JP Morgan and Argentina’s Banco Río de la Plata handled the sale for Telecom Personal. Demand was strong for the three deals, prompting the company to upsize the deal from $380 million. The issuance follows Telecom Argentina’s August 2005 restructuring of $2.63 billion in debt, the largest corporate debt reorganization in the country’s history. 

The Three Rs In Mexico
The World Bank approved a $420 million project consisting of three loans aimed at improving the quality of public schools in Mexico. The project is aimed at making Mexico more competitive and productive in the decades to come. The largest chunk of the project – a $240 million loan with payments spread out over 15 years – will be spent on management of the country’s school system, while the rest will be geared toward making basic education more accessible for young Mexicans. 
The Inter-American Development Bank completed its first Mexican peso loan under a new local currency option agreed with state-owned development bank Banobras for a program supporting government decentralization. The disbursement of 202.3 million pesos (equivalent to $19.1 million) came from a $300 million loan approved in 2001 for the first phase of a nine-year decentralization program.

Paraguay Wins in New York
Following a six-year legal battle, the Central Bank of Paraguay has won a case in US District Court in New York to repatriate $16 million of public funds from the US. The money was deposited at Citibank in the US by the administration of former President Luis González Macchi. He has been indicted by Paraguayan courts for his alleged involvement in transferring public funds from two failed banks now under state administration, Banco Unión and Banco Oriental. US District Court Judge John F. Keenan ruled that the funds be returned to Paraguay plus an additional $6 million in interest. The ruling is likely to be appealed. 

An article in the November issue of LatinFinance mistakenly referred to the capital base at Central American Bank for Economic Integration (Cabei) as being $3.5 billion in 2004. The company’s equity for that year was $1.3 billion and its assets were $3.5 billion. We regret the error.