LatinFinance - September/October 2013 - 66

haven’t involved creditors receiving equity,
says Revisson Bonfim, latam corporate
researcher at espírito Santo investment
Bank. “there hasn’t been a corporate
restructuring of this size with international
investors involved. the rules of the past
may not apply here,” he says.
Bankruptcy processes in Brazil have
been relatively creditor-unfriendly Bomfin
says, with little investors can do to control
the process.
any restructuring at oGX would come in
addition to reworking eBX-level obligations.
eBX has said it has done so, although it
has offered no details. the eBX Group has
around $6 billion in bank debt, according to
estimates from Standard & Poor’s.
Brazilian lenders don’t seem worried.
itaú-Unibano ceo Roberto Setúbal told
LatinFinance in august that the level of
exposure of banks to eBX does not pose a
systemic risk problem. BtG Pactual ceo
andré esteves made similar remarks in his
bank’s earnings call, and BnDeS president
luciano coutinho has also said publicly he
is unconcerned.
Credit binge
Still, the troubles at oGX will be negative
for lower-rated Brazilian credits, says omar
Zeolla, credit analyst at oppenheimer
funds. “there is going to be lack of
confidence in lower-rated companies, they
won’t be given the benefit of the doubt,” he
says, adding that investors have conversely
favored mexican high-yield borrowers.
low yields in recent years have made
it easier for smaller, riskier companies to
borrow, and Brazilians are no exceptions.
With economic growth slow and
commodity prices falling, the number of
companies to default may rise, says fitch’s
Kastholm. But eBX is not itself symptomatic
of any larger problem.
“this is a very credit-specific story, and
very idiosyncratic,” he says. “it was a highly
speculative credit when it went out the
door, and there were very good prospects,
albeit risky, for being able to generate a
great deal of cash flow in a short time that
just didn’t pan out.
“the problems at eBX could tarnish
global investors’ perception of Brazil,”
Kastholm says. “Will it stem capital flows? i
don’t think so. the market is still pretty big
and there is still appetite for these types of
assets.”
But when the US federal Reserve begins
to normalize monetary policy in response
to economic recovery at home, borrowing

66 l atinfina nce.com - September/October 2013

One-way street

costs in latin america will rise, he says.
“over the next year or so, we’ll go
through a transition period where you will
have borrowers that are used to getting
long-dated cheap money who will not want
to pay these higher expected coupons.
eventually their expectations will converge
with investors’ as a new reality sets in.”

Closing levels of the Ibovespa, 2013
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
January

May

August

Source: BM&Fbovespa

The benchmark index of Brazil’s main
stock exchange has
been on a losing
streak for years.
The Ibovespa has
been dragged down
by poor performers, like Petrobras,
but has also suf-

fered from a methodology that puts
much importance
on trading volumes.
It hopes to remedy
that with a change
to the methodology
that is due to take
effect from 2014.

Stephen Graham, Citi

“There are real
issues in Brazil and
in iTs economy ThaT
have kepT sTocks
from rising, BuT
The pain has Been
exaggeraTed By The
meThodology of
The Bovespa”

Opportunity in a crisis
Brazil will need to rebalance more than
just its stock index to improve the lot of its
companies. inflation and rising interest
rates aren’t helping equities.
But as the once-vaunted momentum in
consumer demand fades, the situation may
in fact get better for some exporters — even
as commodity prices come down.
“every conceivable indicator of wellbeing had been moving in the right
direction in Brazil,” citi’s Graham says.
“that’s been driving incomes for Brazilian
consumers and that’s been driving their
stocks. that has been working out as it
should, but one of the policy errors in Brazil
is that that worked out for so long that it
took the government too long to realize that
motor was running out of gas.”
Graham characterizes Brazilian
valuations as low, at 10 to 11 times earnings.
However, retailers and consumer
discretionary stocks have remained
expensive, at about 20 to 25 times.
“for a long time the best stocks were
consumer and retail,” Graham says. “now
the best stocks would actually be the
Brazilian commodity stocks.”
Brazil’s real has fallen from 1.96 reais to
the dollar in early march, to the year’s low
of 2.4 reais per dollar in late august. it later
retracted some of the weakening, with 2.28
reais buying a dollar in mid-September.
the weaker currency will help exporters,
and low valuations may encourage
buyers, especially given higher valuations
elsewhere in latin america.
“Brazil has been underachieving for
several years now,” chevy chase’s Ross
says. “the expectations have finally caught
up and maybe even fallen below the reality
for the country.”
Yet on a comparative basis, Brazil
might now be set for a second chance.
“When you look at the competition for
investment dollars, and you look at the
other countries — chile, Peru, colombia,
mexico — their economies are all surprising
to the downside right now,” Ross says. “the
rebalancing comes at a time when people
are giving Brazil a second look.” LF


http://www.LATINFINANCE.COM

LatinFinance - September/October 2013

Table of Contents for the Digital Edition of LatinFinance - September/October 2013

Latin Finance - September/October 2013
Contents
Front notes
People news
Debt news
Equity news
M&A news
After the storm
Advantage Mexico
Treading water
New structures
Mexico
Regaining the Initiative
Deficit Ahead
Building up
Switching Course
Brazil
Work in progress
Extreme makeover
Mind the gap
Brazilian life insurance
Andean
Breaking the fall
Reaching out
Market movers
Paraguay
Smoothing the cycles
Thinking big
Parting Shot
LatinFinance - September/October 2013 - Latin Finance - September/October 2013
LatinFinance - September/October 2013 - Cover2
LatinFinance - September/October 2013 - Contents
LatinFinance - September/October 2013 - 2
LatinFinance - September/October 2013 - 3
LatinFinance - September/October 2013 - Front notes
LatinFinance - September/October 2013 - 5
LatinFinance - September/October 2013 - People news
LatinFinance - September/October 2013 - 7
LatinFinance - September/October 2013 - Debt news
LatinFinance - September/October 2013 - 9
LatinFinance - September/October 2013 - Equity news
LatinFinance - September/October 2013 - 11
LatinFinance - September/October 2013 - M&A news
LatinFinance - September/October 2013 - 13
LatinFinance - September/October 2013 - 14
LatinFinance - September/October 2013 - 15
LatinFinance - September/October 2013 - 16
LatinFinance - September/October 2013 - 17
LatinFinance - September/October 2013 - 18
LatinFinance - September/October 2013 - 19
LatinFinance - September/October 2013 - 20
LatinFinance - September/October 2013 - 21
LatinFinance - September/October 2013 - 22
LatinFinance - September/October 2013 - 23
LatinFinance - September/October 2013 - After the storm
LatinFinance - September/October 2013 - 25
LatinFinance - September/October 2013 - Advantage Mexico
LatinFinance - September/October 2013 - 27
LatinFinance - September/October 2013 - Treading water
LatinFinance - September/October 2013 - 29
LatinFinance - September/October 2013 - 30
LatinFinance - September/October 2013 - New structures
LatinFinance - September/October 2013 - 32
LatinFinance - September/October 2013 - 33
LatinFinance - September/October 2013 - 34
LatinFinance - September/October 2013 - 35
LatinFinance - September/October 2013 - 36
LatinFinance - September/October 2013 - 37
LatinFinance - September/October 2013 - 38
LatinFinance - September/October 2013 - 39
LatinFinance - September/October 2013 - 40
LatinFinance - September/October 2013 - Mexico
LatinFinance - September/October 2013 - Regaining the Initiative
LatinFinance - September/October 2013 - 43
LatinFinance - September/October 2013 - Deficit Ahead
LatinFinance - September/October 2013 - 45
LatinFinance - September/October 2013 - Building up
LatinFinance - September/October 2013 - 47
LatinFinance - September/October 2013 - 48
LatinFinance - September/October 2013 - 49
LatinFinance - September/October 2013 - 50
LatinFinance - September/October 2013 - 51
LatinFinance - September/October 2013 - Switching Course
LatinFinance - September/October 2013 - 53
LatinFinance - September/October 2013 - 54
LatinFinance - September/October 2013 - 55
LatinFinance - September/October 2013 - 56
LatinFinance - September/October 2013 - Brazil
LatinFinance - September/October 2013 - Work in progress
LatinFinance - September/October 2013 - 59
LatinFinance - September/October 2013 - 60
LatinFinance - September/October 2013 - 61
LatinFinance - September/October 2013 - Extreme makeover
LatinFinance - September/October 2013 - 63
LatinFinance - September/October 2013 - 64
LatinFinance - September/October 2013 - 65
LatinFinance - September/October 2013 - 66
LatinFinance - September/October 2013 - Mind the gap
LatinFinance - September/October 2013 - 68
LatinFinance - September/October 2013 - 69
LatinFinance - September/October 2013 - Brazilian life insurance
LatinFinance - September/October 2013 - 71
LatinFinance - September/October 2013 - 72
LatinFinance - September/October 2013 - Andean
LatinFinance - September/October 2013 - Breaking the fall
LatinFinance - September/October 2013 - 75
LatinFinance - September/October 2013 - 76
LatinFinance - September/October 2013 - Reaching out
LatinFinance - September/October 2013 - 78
LatinFinance - September/October 2013 - 79
LatinFinance - September/October 2013 - 80
LatinFinance - September/October 2013 - 81
LatinFinance - September/October 2013 - Market movers
LatinFinance - September/October 2013 - Paraguay
LatinFinance - September/October 2013 - Smoothing the cycles
LatinFinance - September/October 2013 - 85
LatinFinance - September/October 2013 - Thinking big
LatinFinance - September/October 2013 - 87
LatinFinance - September/October 2013 - Parting Shot
LatinFinance - September/October 2013 - Cover3
LatinFinance - September/October 2013 - Cover4
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