Saturday, 18 April 2009

The Future is Uncertain, The End is Always Near

Dear Readers of Market Memorandum:

After 10 months of much-needed relax and reflexion, I was offered a job at an international company. I took it, I didn't have to ponder much about it. I stopped adding new stuff in the blog since April 8, when I formally joined that company, and for that I owe you an apology. In recent days, and I don't mean this to sound as an excuse, I have also been busy coordinating my move, sorting out some personal problems and especially, getting myself focused on this new responsibility. I am sure you do understand that.

I don't know if my new employer will allow me to carry on with this blog. Perhaps it will under certain conditions, perhaps it will not. Since the future for this space of opinion and news is uncertain, I have to say that the end to it might be closing in too. For the past three months I enjoyed doing this and some very nice readers, especially my very good friends Carlos Puyo and Hans Paul Tobler, encouraged me to kick it off. Early in December, Otto Rock and Fernanda Sofio, my sweetheart for years, helped me start with this project. At some point the blog had 400 hits a day and the readership was growing rapidly in late March. I was very pleased because it was a sincere effort to bring to all of you the news that mattered in these turbulent markets as well as data that readers might have no easy access to. I really hope you readers enjoyed this.

But this space wasn't only created to discussing market stuff. We also wrote about social issues, poetry, music. I was surprised by the very warm response of yours about some of this stuff. My sincere gratefulness to all of you who participated and shared your opinions with me and the other readers. I will be grateful forever. There were comments, especially about markets and politics, that were harsh and many times I was shocked by the rudeness of some comments. I have no reason to hold any grudges to them: when you write about sensitive stuff you have to be ready to get passionate, or maybe rude, responses from your readers, who are in the end the last destination of your writing pieces and your very judges. So, to all those who were rude at some point, my thankfulness goes too -- you guys taught me to think better the stuff I was putting in.

Well, I might also have to stop with this blog because I need to focus on my new life -- it's a new career in a new town. Blogging requires a lot of time and if you are to do this responsibly you need to give it the time it needs. It's like a little kid. I learned that from Otto Rock, whom I respect a lot. Blogging requires the utmost attention. I am not sure I am able to blog at this point.

Thanks to Fernanda, Otto, Jim, the Carioca Grouch, Anna Pérez (my very friend and a person who also found this effort useful for her work,) my friend Elzio Barreto in São Paulo, Toby Muse, and other bloggers such as Fausta, Genovieve Signoret, Miguel Octavio ... I run the risk of forgetting names. Occasional readers included lots of former colleagues at Bloomberg, Dan Shirai of LatinFinance (to whom I owe a lot professionally-wise,) my colleagues and bosses at the market intelligence companies I used to work for. Thanks to all.

One last thing. There is one person I cannot mention by name -- for work and personal reasons -- who was a constant source of inspiration when writing this blog. Since the very first time we talked, that person always allowed me to see the other side of the coin. Every story has two sides. We know that. The person's clarity and very rational points of view, the person's pursuit of objectivity and always warm speech helped to make that concept much clearer. I wanted to recall that enlightening conversation we had about Evo Morales, a chat that helped change my views radically about the situation in Bolivia. I have to thank that person for her continuous stimulus and encouragement, and the time we shared exchanging views about the world, life and things.


It's all over -- for now.

Thanks a lot,

Guillermo Parra-Bernal

Wednesday, 8 April 2009

New Issuance -- Telemar, Part of Brazil's Newly-Created Phone Giant, Mulls Selling 2019 Bonds

The following is information on the planned sale of dollar bonds by Telemar Norte Leste, on behalf of Oi, the telecom group created with the merger of Telemar and Brasil Telecom under the sponsorship of President Luiz Inacio Lula da Silva. The sale will likely take place by the end of next week, according to anonymous sources.

The sale is part of a plan under which the company, in this case Telemar, will refinance debt incurred during the acquisition process of Brasil Telecom. The takeover transaction was valued at about 5 billion reais at the time and a greater part of it was financed by state penson funds and the BNDES development bank.


Issuer: Telemar Norte Leste SA
Ratings: Baa3 (stable)/BBB- (stable) (Moody's/Fitch)
Format: 144a/RegS Senior Unsecured Notes
Size: Dollar-Denominated Benchmark (At Least $500 Million)
Tenor: Ten Years (Due 2019)
Bookrunners: Citigroup Inc. / Banco Itaú BBA SA / Banco Santander SA / BB Securities / Banco Bradesco BBI
Use of Proceeds: Debt Refinancing, General Corporate Purposes
Roadshow: April 13-16

Tuesday, 7 April 2009

Lies Lies Lies ... Check This Posting by Felix Salmon on the G-20 Package

We were discussing this subject of the crisis and the role of the G-20 with friends over rum and vodka last night at a Bogotá bar. We were asking whether is true this thing about the market rally and all that. It's a bear market rally. I am not that convinced that the rally will prevail, confidence will be fixed and signs of a global recovery will be seen this year (my most optimistic scenario sees it coming by the end of the second quarter of 2010.) My friends, though, are just exhilarated by the idea of Barack Obama fixing the markets and overhauling the culture of greed in America -- making America more human. They keep dreaming. I think they were drunk, not me.

Check this blog posting by Felix Salmon -- We all saw the show of these G-20 presidents gathered altogether in London, trying to show they are acting to avert the mistakes that led to failed coordination policies of the Big Three back in the 1930s. The collapse of such scheme back then led to the worsening of the global depression. I hated the meeting, I have to say: seeing U.S. President Barack Obama kissass-ing Brazil's Luiz Inacio Lula da Silva was stupid. Lula, in turn, could only say stupid things such as the crisis was triggered by the actions of ''white people with blue eyes.´´ Jesus! It was just that, show and cameras and unfortunate statements. They announced trillions of dollars in aid for the next five years and all that. But, what of all that is new money?

Felix Salmon says: ''Net-net I’m inclined to believe that any hard-and-fast statement about how much new money there really is in the G20 package is almost certain to be false: the fact is that no one knows for sure, and won’t for some time yet.´´

New Issuance -- IFC Might Sell Dollar Bonds in International Markets

The International Finance Corporation, the investment-banking-like arm of the World Bank, mandated BNP Paribas SA, HSBC Holdings Plc. and JPMorgan Chase & Co. for a five-year dollar-denominated Global benchmark issue, according to people involved in the transaction. The sale might take place in ''the near future, subject to market conditions.´´ This might happen as expectations that the bear market rally we have witnessed in previous days (stocks are falling for the first time in several days today) is likely to stay for a bit longer. I have my doubts about it. In the meantime, companies are looking for windows of opportunity to sell debt or arrange new financing schemes -- and for the IFC this is probably be a good time to place a benchmark size issue in the markets at a competitive yield.

The IFC is rated Aaa by Moody's Investors Services and AAA by Standard and Poor's.

Friday, 3 April 2009

SEC Said to Be Mulling Short-Selling Curbs, According to Bloomberg Report

This is the text of a story by Bloomberg News about possible curbs on short-selling. Many people in the markets reject the idea, for short-sellers can be critical to efficient liquidity allocation and somehow as easy operation of energy, commodity, currency and derivative markets.
The U.S. Securities and Exchange Commission is considering dictating when traders can bet that stocks will fall, after lawmakers said short-sellers fueled the financial crisis by driving down shares, according to two people familiar with the matter. The SEC may offer two proposals April 8 that would place more stringent limits on bearish bets than a plan backed by four U.S. stock exchanges, according to the people, who declined to be identified because the proposals remain under discussion at the agency. Since taking over in January, SEC Chairman Mary Schapiro has faced pressure from Congress to reinstate the so- called uptick rule, which required traders to wait for a price increase before executing short sales. (Click here for a link to the Bloomberg story. )
The imposition of a temporary ban on short sales in September fuelled a witch hunt on hedge funds. Apart from the igniting remarks of politicians, victims of market drops and even the Church, which has fueled more confusion and anger over the role of financial speculators on the financial system, we have seen little debate over the role of hedge funds in general, the importance and excesses of short-selling and whether the latter two are beneficial to the health of the financial markets. One investor, Fernando Meibak of Sunrise Investments in São Paulo, told this blog back in December that, for the case of bank shares around the world, the current framework that makes banks over reliant on wholesale funding and vulnerable to a downturn in investor confidence, makes financial stocks a target of short-sellers. One thing is, he said, that short-sellers manipulate the markets for profit reasons, and another is the role that short-selling plays on the correct functioning of market pricing. Market abuse is already illegal and should be punished -- not the activity of shorting per se. Short-selling is an important part of financial markets these days. It isn't an exclusive activity of hedge fund managers.

Thursday, 2 April 2009

South Korea's Kexim, IDB Sign Accord to Fund $2 Billion in Projects

The Export-Import Bank of South Korea and the InterAmerican Development Bank will sign an accord to co-finance public and private sector projects worth as much as $2 billion in the next three years in Latin America and the Caribbean. Kexim, as the Korean official export credit agency is known, and the IDB ''will work together to share information and identify and finance projects in infrastructure, information technology, trade finance and other areas,´´ according to a statement.

The Kexim sold bonds in international markets recently. Check our archive for the posting.

Latin Governments are Resorting to Protectionism to Cushion Their Economies From Effects of Global Crisis, According to Analysis Piece by Reuters

Read this interesting analysis piece by Reuters reporter Helen Popper (click on this link to read the story.) Recent evidence found by ING Bank NV economists says Brazil, a country with a very closed economy and lots of restrictions on imports, is to benefit from shutting its borders to imports or awarding cheap credit to local companies during the current crisis. Brazil has been lending massively to companies through the BNDES, the state development bank, for expansion projects, the continuation of ongoing plans and debt refinancing efforts. Some see that as protectionist, since it may break some WTO rules -- we will soon see.

Among the few countries that aren't considering restrictions are those that used the boom of the previous years to build their cash position, reduce public debt and pursue long-term free trade accords: Colombia, Chile and Peru. Of those three, the latter two are better suited to weather the current global downturn. Colombia is struggling, partly because it has structural fiscal and external sector shortcomings.

Going back to the main purpose of the Reuters piece, Popper shows examples of recent measures by Ecuador, Paraguay and Argentina raising barriers on imported goods and tells us of the increased willingness from other governments in the region to retaliate against their partners. This should have implications for companies that, like Brazil's Embraer or steelmaker Gerdau, have some of their natural, more profitable markets in neighbouring Latin nations.

Worth reading it.

Odebrecht Raises $200 Million in Sale of Five-Year Debt, Sources Say

Issuer: Odebrecht Finance Ltd.
Rating: BB (stable) / BB+ (stable)
Tenor: Five-Year (April 2014)
Size: $200 Million
Yield: 10.00 Percent
Bookrunners: Banco Santander SA / Banco Itau Holding Financeira SA
Co-Manager: Banco Espirito Santo SGPS

Accounting Rules Eased in the U.S. ... Finally

The U.S. Financial Accounting Standards Board decided to ease mark-to-market rules that banks say fail to work when markets lack of buyers. Well, as University of Chicago professor Eugene Fama used to spot, in markets characterised by ''fat tails´´ there are no buyers, normally speaking. Well, the FASB identified this, a bit late -- that is the problem of regulatory and oversight agencies in general. They are always late.

The changes approved today to mark-to-market rules will allow companies to value assets in such a way that the writedowns stemming from market declines on certain investments, including asset- and mortgage-backed securities, reflect those declines in a less violent fashion. We should expect the net income results of financial companies being boosted following the changes.

CAF Sells Debt in Colombia -- Showing Resilience of Local Corporate Debt Market During Crisis

Corporación Andina de Fomento, the multilateral institution created by the Andean Region nations to promote investment and lending in greater scale, sold 240 billion pesos (or about $95 million) in fixed-rate bonds on Colombia’s domestic debt markets. The Caracas-based multilateral sold 112 billion pesos in 2014 bonds at 9.60 percent, and 128 billion pesos in bonds due in 2019 at a yield of 10.79 percent. This is CAF’s third peso-denominated bond offering in Colombia -- it had sold 240 billion pesos of floating-rate debt in December. Market talk had put a CAF offering at the end of the second quarter; in a recent talk we had with one bank executive, he said the chances of issuing in Colombia were gaining momentum because of the local markets' rising demand for corporate and quasi-government debt paper amid tanking bond yields. InterconexiónEléctrica SA, the largest utility in Colombia, is expected to place almost 200 billion pesos in six- and nine-year bonds as early as this week. The Colombian debt market is, thus, the most active so far in Latin America; relative to Brazil or Mexico, offerings have been ten times bigger, the market response has been active and movements in yields have reflected the different stages of the current liquidity crisis.

The local securities unit of BBVA, the Spanish lender, managed the transaction. Demand for the CAF bond topped 300 billion pesos, according to buyers of the issue.

Pemex Issues 10 Billion Pesos of Domestic Three-, Seven-Year Bonds; First Step to See Local Bond Spreads Narrowing, People Say


Petróleos Mexicanos SA, the giant oil company controlled by the Mexican government, sold debt in the domestic markets amid hefty demand for long term instruments. We had extensively talked about the health of the Mexican debt market -- which for months has only allowed for corporate paper issuances at the expense of long-term corporate bonds offerings. It seems that finally, issuances from the highest-rated companies are kicking off. Pemex's transaction was a litmus test for the depth of this market -- clearly it passed it well, according to some analysts.

Terms of the Pemex sale were: three-year floating-rate notes (FRN) linked to the benchmark interbank interest rate TIEE; the issue was priced to yield TIEE plus a spread of 100 basis points. The total issued of this tranche was 6 billion pesos. Pemex also placed 4 billion pesos of seven-year, fixed-rate bonds at a yield of 9.15 percent. The yield has an equivalent in Mexican Treasury notes rates -- the Mbonos of similar maturity plus 1.6 percentage points.) Demand for the offering topped a sizzling 24 billion pesos, and most of the bids came in from local pension funds. These funds ended up being the major buyers of the paper, according to a banker involved in the sale.

Wednesday, 1 April 2009

Taleb, 'Black Swan´ Author, Says U.S. Bank Plan Will Tank. We Agree.

Last night I was chatting with an old friend of mine about the U.S. plan for its lousy financial system and he was clear -- sort of felt that he was right: ''Why do people, taxpayers, have to pay for the lousy risk-assesment strategies of these idiots?´´ I agreed with him. Then I stumbled across this story on the Bloomberg News Web iste, and I decided to reproduce it. Nassim Taleb, the author of ''Black Swan,´´says removing toxis assets from balance sheets will do little to kickstart credit and revive the U.S. economy. Sorry to say this, he is right. We expected the Barack Obama administration to be as strict with Wall Street firms as it has been with companies in Main Street (check our posting early this morning about the president's reported remarks over the future of General Motors Corp. and Chrysler Corp.)

Reach your own conclusions -- we have already done that at MM. Click here to read the story (with pictures and all the gadgets.)


Nassim Taleb Says Geithner’s Bank Plan Will Fail (Update1)

By Jeff Kearns and Erik Schatzker

April 1 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

“We’re heading in exactly the wrong direction,” Taleb said in a Bloomberg television interview. “I want an overhaul, I want something drastic. This is going to fail, this is not it.”

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets. Leaders from the Group of 20 nations meeting in London this week are unprepared to fix the global financial system because they don’t grasp how markets work or the root causes of the credit crisis that has led to $1.2 trillion in losses and asset writedowns, Taleb said.

Rare and unforeseen events are known as “black swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Taleb is a professor of risk engineering at New York University and also advises Universa Investments LP, a Santa Monica, California-based firm opened in 2007 by Mark Spitznagel, Taleb’s former trading partner.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market, Taleb said.

Subsidize Failure

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets,” he said. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”

Taleb said it’s “shocking” that the government would allow banks to estimate the value of the toxic assets that remain on their books because there is effectively no market for the securities, making them almost impossible to value.

“I don’t understand letting banks mark to market, after all this incompetence,” he said. “Why don’t we allow people to mark their house at what they think the value of their house is?"

Odebrecht Bond to Be Priced Early Tomorrow; Books Closed in America, Sources Say

The Odebrecht bond put up for sale yesterday has the bookbuilding closed in the U.S.; European investors will close orders tomorrow and pricing should be ready by midday, said sources involved in the deal. We will see current market demand and pricing trends -- whether they are supportive of indications of an improvement in risk-taking.

Check This Posting on a Reuters Blog: Debt Restructuring in Europe Being Chased Out by Distressed Debt Funds

Check this posting. We will yet see whether the same happens in Latin America. There are sectors in distressed financial situation and with grim prospects of debt refinancing in the short term: ethanol, meat, foods, farming companies.

Brazil and Some Details About the Fiscal Numbers for February


Those who read this blog regularly probably know that I am not especially a fan of Brazil's government, its very ambiguous economic policy framework and particularly its management of the fiscal situation. This time I won't defend the awful administration of public finances by Criswell, the lousy finance minister who assured his countrymen that the global crisis would only touch Brazil marginally, be just a ''marolinha´´ -- a roller, a shallow wave. What an idiot. The economy posted its worst quarterly contraction in the fourth quarter and is going straight to recession.

Well, the thing here is, yesterday the government announced that the consolidated primary budget surplus, or the excess of revenues over expenses excluding debt payments, narrowed by 66 percent in the first two months -- amounting to about 2 percent of gross domestic product in relative terms. The accumulated result is certainly bad. I listened to some radio and specialised TV programmes predicting the fallout of Brazil and some doom scenarios. The numbers are certainly worrisome, but we have to take into account some aspects in the bottom line that should keep readers cool about the (deteriorating yet far from end-of-the-world-like) fiscal position of the Brazilian government.

The primary surplus was 4.1 billion reais in February, narrowing from 5.1 billion reais in January -- and without a doubt, a couple of disappointing monthly results. The numbers were though better than the market’s average estimate surplus of about 1.2 billion reais. Furthermore, the consolidated nominal budget deficit narrowed to 6 billion reais in February from January's 9.2 billion shortfall. All in all, a whooping 10.1 billion reais in interest payments were to blame for the sizzling back-to-back deficits. Despite the fact that the primary surplus was about half the value of February 2008's 9 billion real surplus, my guess is that, once you take a look at the figures unveiled by the central bank yesterday, there is an improvement on the margin in the interest/GDP ratio. This is consistent with recent declines in domestic borrowing costs and especially, the reduced weight (sensitivity if you like it) of currency fluctuations on debt dynamics. Anyways, taking into account the awful erosion of tax collections during the past five months and the irresponsible increase in expenses sponsored by that lousy finance minister and related to the government’s economic salvage plan, the data in my view was not that worrisome.

Nonetheless, be sure that at some point the same rating agencies that were quick to see Chile's strength and especially comfortable fiscal and external position to award the nation an increase in debt ratings, will be quick enough to spot the weakest aspects of Brazilian policy making -- which we believe is erratic and desperate in our view. We believe that at some point the rating agencies that awarded Brazil investment-grade last year will begin revising their stance -- it would surprise me if they at least don't send a warning on Brazil's deteriorating fiscal numbers.