Latin Finance - June 2008 - 36

corporate debt outlook have to pay a premium.” Braskem’s gross debt ballooned to 9.4 billion reais in April, 12% more than at the end of 2007, according to the company, and over 70% is in US dollars. Rising operating costs have also eaten into profits. About 1.2 billion reais comes due in 2008, and capex plans for this year call for 1.3 billion reais. The petrochemicals producer also raised 324 million reais in January through a contracts revenue securitization. Meanwhile, sugar and ethanol producer Cosan turned heads with its April purchase of Esso assets from ExxonMobil, for $826 million plus $163 million in assumed debt. It planned to fund $350 million with proceeds from a share sale, and the rest with debt this year. If it does not want to incur a new issue premium, one option might be retapping its liquid 2017 bond. “There have been rumors that we are coming to the market very soon,” says CFO Paulo Diniz, speaking mid-May. “But we have a large cash cushion, and we are analyzing our options.” Also in April, compatriot Telemar finally completed a painfully slow acquisition of Brasil Telecom, for which it may need more than 16 billion reais. A jumbo syndicated loan is expected, but a significant piece of real-denominated or even dollar bond debt is not out of the question. It is separately preparing 1.6 billion reais in local bonds to repay shortterm debt from last year. “Telemar has a history of issuing locally, and they’ve issued in size locally,” says Schmieder. “All of that paves the way for whatever they want to do now.” Meanwhile, Mexican miner Peñoles, fresh from a $2 billion IPO spinoff of its precious metals units into the newly formed Fresnillo, plans to come to market for refinancing. Peñoles has said it will use IPO proceeds to pay down some of its long-term debt, but also aims to take out new debt to refinance some $500-$600 million structured silver payable notes and senior unsecured notes. could not get the pricing it wanted on the $500 million retap of its 2016 notes, and pulled back. A subsequent non-deal roadshow smoothed things over with investors, but the issuer may still have to pay up. The state-controlled oil producer will be looking to bring bonds as soon as it can, following the Brazil sovereign upgrade and rising needs to exploit new finds. An issue was expected by late May, when Petrobras was to have finished reporting earnings. In addition to the 2016s, reopening the more liquid 2018 notes is also an option, say bankers. Petrobras may need to raise tens of billions in the markets for capex to exploit recently discovered reserves. Almir Barbassa, CFO, has announced that the company would like to sell $3.6 billion in bonds this year, compared to less than $800 million, on average, each year from 2001 through 2007. The firm has some $7 billion in cash and will be able to cover a large part of investment funding needs through future operating cashflow. It also has recourse to development bank BNDES. Fellow frequent issuer Pemex is a perennial candidate for a second half issue. The Mexican quasi-sovereign has just over $800 million coming due early next year, according to Deutsche Bank. Fellow large Mexicans with maturities include Telmex with $1 billion in November and América Móvil with $500 million, according to data from Deutsche. Development bank BNDES, an increasingly active lender during the credit crunch, may turn out to be the Brazilian financial institution sector’s most interesting issuer. The multilateral has a $1 billion facility coming due that it is expected to refinance, and is heard considering new dollar debt, according to bankers. Buyers’ Market While many issuers can wait, retail and commercial banks need to keep up with rapid growth in domestic consumer credit markets. During the first half of 2008, Brazil’s large lenders reverted to tactics used in tougher times, securitizing electronic payments receivables. Banco do Brasil – which has done the transaction even in good times – Bradesco, Unibanco and Santander all did ABS deals ranging from $190 million to $500 million. Mid-sized counterparts like Banco BMG and Banco Cruzeiro do Sul have been active in the dollar market, for more accessible 18-month and two-year high-yield deals of $100-$200 million each. If conditions continue to improve, bigger names could join in for larger sizes and tenors. But there is a big question mark over high-yield names not in the financial sector. The sheer number of double B issuers lined up in October and November suggests some will have to follow the investment grade train. However, as recent high grade pricing shows, market prices may only make sense to the truly desperate, as junk levels look set to remain elevated for the medium term. “It’s a question of pricing in this market,” says Aaron Holsberg, head of Latin credit research at ABN. “Issuers coming now must pay,” he adds, saying that it is no longer a question of windows opening and shutting as in the first half of the year. Borrowers across the spectrum have noted the changing tide, not least frequent Mexican peso issuer Hipotecaria Su Casita. “Things have changed completely,” says Su Casita CFO Mark Zaltzman. “We’ve had to completely change our strategy.” By contrast to last year, when investors were not interested in meeting but still placed huge orders for the bonds, Su Casita now has to go and see every buysider and explain all details of a transaction. It is also doing a lot of non-deal roadshows and, like a high grade US entity, flagging for investors full details of the year’s issuance plan. Transparency and reporting has become crucial. “This is now a buyer’s market and we cater to that fact,” says Zaltzman. LF The Usual Suspects Petrobras tried to be the lone investmentgrade name braving the spring dollar bond markets in February. However, it UPDATE > For daily DCM news and an exclusive pipeline of debt deals see www.latinfinance.com 36 LATINFINANCE June 2008

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Latin Finance - June 2008

Table of Contents for the Digital Edition of Latin Finance - June 2008