Tuesday, 20 January 2009

Lula Helps the Ermirios and the Lorenzens: Votorantim Acquires Rival Aracruz With Help From BNDES

According to Folha de S. Paulo, state development bank BNDES will provide Votorantim Celulose with funding for its purchase of control in rival Aracruz. Aracruz announced yesterday that it struck an agreement with banks to restructure over $2 billion of debts related to bad bets on currency derivative contracts. It also said it agreed to be taken over by Votorantim.

Under the BNDES-Votorantim deal, the company will place 580 million reais in convertible debt and commit to issue 1.8 billion reais in preferred shares for the government. This is another step in this absurd race by the Lula administration to increase the state's grip in every single industry. Not long ago it happened with the telecom industry, then with banks, and now with the cellulose and pulp sector. Real estate will be next. The move also forms part of what comedians in Brazil have called ''market nationalism,´´ that is, the deliberate use of taxpayers' money to keep some Brazilian companies (many of them corrupt as the case of Brasil Telecom, or disrespectful of its shareholders as the case of Aracruz,) afloat and far from the hands of foreigners. As if it ensured good management ...

Aracruz Debt Plan

Aracruz was the second company in Brazil that reported hefty derivative losses just as the dollar surged against the real. In early October, when the currency had dropped almost 35 percent from the month before, Aracruz announced it had piled up $10 billion worth of short positions against the dollar. It almost drove it bankruptcy. The company amassed about $2.6 billion in debt, which it agreed to settle yesterday with a group of ten banks.

A source in the Brazilian capital markets told us that Aracruz will have nine years to pay the debts to banks (which include JPMorgan Chase & Co., Merrill Lynch & Co., Citigroup Inc., Calyon SA, Banco Santander SA, Barclays Capital, Deutsche Bank AG, Goldman Sachs Group Inc., ING Bank NV e BNP Paribas SA.) In spite of the easier terms, the banks want the company to pay step-up coupons on the new loans so it speeds up repayments, the source said. The interest rate on the loans will be pegged to the Libor; the spread begins at 3.5 percent this year and every year will increase by 0.5 percentage points. Some assets were given as guarantee.

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