Wednesday, 7 January 2009

Political Risk Bulletin: More News Stories to Read

Night reader -- there you go. More to think (and laugh) about this crazy continent.

BOLIVIA -- Morales Creates State-Run Sugar Processing Company (Click here for link) : Socialist, former coca leader Morales is following the steps of his mentor, friend and lender Hugo Chavez (yes, the president of Venezuela.) Among the companies that Morales has founded under the tutelage of the Venezuelan caudillo are an airline, a paper factory, a cement factory, a food processing plant and dairies. Note that the report says that only one is operational: the plant that elaborates foodstuffs. (By the way, there is no bias against Morales and the Bolivarians in this page.)

BOLIVIA -- Morales Wants to Put Oil Industry Investment Proposal to Vote in Referendum (Click here for link): Referendums are in vogue in Latin America. Now Morales wants people to decide whether to use international reserves to pay for investments in the oil industry. Assume all the risk and, if you don't find the oil, no problem, taxpayers pay the bill. These guys have a rather peculiar definition of democracy in their minds.

BRAZIL -- Report Says That Illegal Weaponry Enters Brazil From Five Countries (Click here for link): A recent story by Bloomberg reported that Brazil was redeploying troops as a way to counter Venezuela's growing military might (ha!) In fact, as I explained that time, Brazil is redeploying troops because of recent Supreme Court decisions involving the bordering of indian reserves alongside Brazilian borders, as well as to clamp down on smugglers of weapons, drugs and consumer goods. Remember that smuggling of firearms must be a quite profitable business in Brazil following the implementation of a ban on firearms in 2004.

CHILE -- Prosecutors to Open Probe Against Wal-Mart on Alleged Ban to Sell Cuban-made Goods (Click here for link): Chilean authorities need to look deeply into this issue, and see whether the restrictions represent a violation of consumers' rights. The sovereignty issue is secondary -- the most important is to see whether it hampers the right of consumers to buy anything they want.

COLOMBIA -- Coffee Growers Guild to Sue Cartoonist Over 'Offensive´Drawing (Click here for link): Gimme a break!

COLOMBIA -- Funding Needs for 2009 Are Already Sealed (Click here for link): Yesterday's bond sale sealed Colombia´s financing requirements for the year. Mr. Uribe, why then you start cutting fuel prices and reallocating more of the excess tax revenue to more social and infrastructure spending? We think it's about time to do so!

MEXICO -- Truce With Drug Traffickers Expected (Click here for link): Our blog is very interested in this issue. Usually (and that's the case of Colombia,) such truces don't hold. Yet, the Mexican government must continue with its repression policy until it forces to an inflexion point in the war against drugs there, while exploring other peace alternatives.

VENEZUELA -- Venezuela Expels Israeli Ambassador in 'Solidarity´Gesture to Palestine People (Click here for link): The expelled ambassador, Shlomo Cohen, told the media yesterday that the decision ''wasn't surprising because the regime supports and is a partner with Iran.´´ Ayayay. On the other hand, President Chavez called on Israelis to stand up against their government. What would he do if any other president, let's say, Colombia's, calls on Venezuelan citizens to stand up against their own government for ... uhhhmmm, the continuing abuses to electoral and political rights, or the veiled official support to leftist armed groups in the region, or ... uhhhmmm, for the abuses committed against private investors in Venezuela, uhhhmm, or government inaction against urban and rural violence and the surge in kidnappings? Cónchale!

Moral Hazard? Nailin' Palin? Hustler´s Larry Flynt Urges Government Bailout of Adult Industry

Well, dear readers, hahahah!!!! This is the original text of a release by Larry Flynt's Hustler and (hey! read this!) Girls Gone Wild CEO J. Francis. Flynt, the mastermind of the Nailin´ Palin porn series, is telling us that porn is no less important than the auto industry and banks. ''People need entertainment.´´ The U.S. can´t afford it without a strong porn industry (neither can it afford to leave jobless thousands of porn actresses and actors, dildo makers and camera men.)
Go Larry, go!

Hustler's Larry Flynt and Girls Gone Wild CEO Joe Francis Ask for
GovernmentBailout of the Adult Entertainment Industry

The $13 Billion Industry Is In No Fear Of Collapse, But Why Take

LOS ANGELES, Jan. 7 /PRNewswire/ -- As the 2009 AVN Adult Expo opens
in Las Vegas this week, Girls Gone Wild CEO Joe Francis and HUSTLER
magazine publisher Larry Flynt are petitioning the newly convened 111th
Congress to provide a financial bailout for the adult entertainment
industry along the lines of what is being sought by the Big Three
automakers, a spokesperson for Francis announced today.
Adult industry leaders Flynt and Francis sent a joint request to Congress asking
for $5 billion in federal assistance, "Just to see us through hard times,"
Francis said. "Congress seems willing to help shore up our nation's most
important businesses, we feel we deserve the same consideration. In
difficult economic times, Americans turn to entertainment for relief. More
and more, the kind of entertainment they turn to is adult
But according to Flynt the recession has acted like a
national cold shower. "People are too depressed to be sexually active,"
Flynt says, "This is very unhealthy as a nation. Americans can do without
cars and such but they cannot do without sex."
While not to the
degree felt by banks and automakers, the Adult Entertainment industry has
been hit by the effects of the economic downturn. DVD sales and rentals
have decreased by 22 percent in the past year as viewers turn to the
internet for adult entertainment. It is estimated that roughly half of all
internet users visit adult sites, with the number of unique visitors to
adult websites (including and has grown to
more than 75 million per month.
But the "saltpeter" effect remains.
"With all this economic misery and people losing all that
money, sex is the farthest thing from their mind," Flynt says, "It's time
for congress to rejuvenate the sexual appetite of America. The only way
they can do this is by supporting the adult industry and doing it
"The popularity of adult entertainment in America has grown
steadily for the past half century," Francis says. "Its emergence into the
mainstream of popular culture suggests that the US government should
actively support the adult industry's survival and growth, just as it
feels the need to support any other industry cherished by the American

Philippines Raises $1.5 Billion in Bond Sale. Results Out! We're Quicker Than Newswires

Risk appetite is coming back. Low yields in the U.S. are feeding again demand for emerging market debt ... this might be key for some countries to ease their funding requirements and try to seal them until the dust settles. The Philippines´s bond sale final results follow:

  • Issuer: Republic of the Philippines
  • Ratings: B1/BB-/BB positive/stable/stable
  • Deal Size: US$1.5 Billion
  • Price: 99.158
  • Coupon: 8.375%
  • Yield: 8.50%
  • Spread: UST 3.75% 11/18 + TBD basis points (bps)
  • Settlement Date: 14th Jan 2009
  • Maturity Date: 17th June 2019 (short first coupon, 17th June 2009)
  • Managers: Credit Suisse, Deutsche bank, HSBC Holdings Plc.

Bloomberg writes: ''Money market rates and corporate bond risk benchmarks suggest the healing has started. The Libor-OIS spread, a measure of cash scarcity, has narrowed since September and the London interbank offered rate that banks charge each other for three-month dollar loans is at its lowest for more than 4 years.´´ So risk appetite is back ... perhaps the next step we will see is ultra good corporates seeking to resume road shows and trying to tap markets -- the challenge for companies will be to learn for how long this window of opportunity will remain open.

Petrobras Denies Seeking $15 Billion in Loans (Do You Believe These Guys They Don't Need Money?)

Today, newspaper Estado de S. Paulo reported that Petrobras, the Brazilian state-controlled oil giant, is seeking as much as $15 billion in loans from local and international banks (click here to read the story in Portuguese. The Bloomberg version of the summary is rather incomplete.)

I talked to Petrobras CFO Almir Barbassa in May last year and he had plans to raise $4 billion from bond sales along 2009. Obviously he failed to do so because of the very challenging market conditions we endured in the second half. In the end, Petrobras might need twice as much that amount to at least ease its funding problems (the company is certainly being hard-hit by the drop in the price of oil, and the demanding state spending it has to fund.)
Estado said the loans sought would be bridge loans of maturities ranging from two to five years. Selling loans, not bonds, might be easier for a corporate giant such as Petrobras at this point. The problem is, which banks are willing to expose themselves so much to a company whose corporate governance practices have repeatedly been put a lot under question, and depends on oil for revenue? Let's remember the case of PDVSA, the Venezuelan oil company, at the start of 2007: after months of opposition-fueled rumours that the company was facing cash strains, management undertook a vast fundraising strategy (sold $7.5 billion in bonds of three different maturities, raised $3.5 billion in loans from Japanese banks and borrowed $1.25 billion in the form of a syndicated loan led by BNP Paribas.) The result ... the rumours were confirmed, the money dried up rapidly and PDVSA had problems renegotiating the Paribas loan a year later. The difference is, PDVSA did all this at a moment of abundant cash in the marketplace. Is Petrobras being careful enough in the use of its cash? Ask President Lula's Chief of Staff Dilma Rousseff.

Check the table. Cash holdings fell to a five-year low in the month of Sept. 2008 (and they probably fell even further in the fourth quarter of last year.) Reach your own conclusions. (The source for this table is the company's own Web site.)

I just talked to a couple of people who are always hearing things about Petrobras. The company is always sounding out banks. This news, therefore, shouldn't be taken as the first sign of an imminent financing package for the Rio de Janeiro-based company. But, you dear reader, can be sure that Petrobras is seeking a free-ride from Brazil's successful bond sale of yesterday. Will it work? We will see.

IDEAGlobal Comments on Latin American Bond Sale Binge (Update)

Here is the comment by IDEAGlobal analysts on the recent sovereign bond sales by Mexico, Colombia and Brazil. According to Reuters and Bloomberg, next to come are Peru and Chile.

''The scoreboard of the last three weeks reads quite positive for
core LATAM credits. Brazil (US$1B), Colombia (US$1B) and Mexico (US$2B)
have all been quite successful in tapping the international markets for USD,
walking away with important 2009 funding at very modest relative yield

This might well be true. Brazil yesterday sold $1 billion of 2019 notes to yield 6.13 percent, or about 3.7 percentage points more than U.S. Treasury yields of equivalent maturity. Colombia sold bonds of similar characteristics (10-year, fixed-rate notes) at a yield of 7.5 percent (a bit more than 5 percentage points above U.S. Treasury yields.) IDEAGlobal said yields were beneficial (''spread concessions moderate when contrasted to the assumed caution still on hand with the overall global recessionary environment on hand.´´) One thing that we haven't mentioned is the fact that specialised investors are discriminating the good credits (Brazil, Peru, Colombia, El Salvador, etc.) from the bad/noisy credits (Ecuador -- in default, -- Argentina -- still in arrears, -- Venezuela -- with cash but raising doubts over its willingness and its political moment, etc.)

Brazil also completed its sale of 10-year notes in Asia, where it sold another $25 million of the securities, according to the National Treasury (check the release here.)

Fitch also made the following comment about the Brazilian bond sale:
''Brazil's investment grade rating is supported by the
significantimprovement in Brazil's external and public sector solvency ratios
whichhas diminished the vulnerability of the country to external and
exchangedrate shocks. Brazil's sizable stock of international reserves and its
netpublic sector creditor status has enhanced its ability to maneuver in
thecurrent unfavorable external environment. A track record of commitment oflow
inflation and a primary budget surplus have enhanced overall policymanagement
and contributed to entrenching macroeconomic stability in thecountry. On the
other hand, Brazil's ratings are constrained by thestructural weaknesses in
public finances, a heavy government debt burden,an unfavorable, albeit improving
structure of domestic debt and a glacialpace of structural reforms.´´

Turkey Goes Next; Citi, HSBC Handling Sale

As you might know, (if you read it here) the Philippines earlier this morning offered a benchmark size dollar bond offering. Turkey followed it -- basically there is a window of opportunity opened for borrowers with special funding requirements (the case of Turkey is well known, a country of deficits.) The Philippines are seeking funds to bolster public spending after the economy posted its worst quarterly performances in eight years in the second half of 2008.

Here is the information on Turkey's offering (courtesy of a good source involved in the transaction)
  • ISSUER: Republic of Turkey
  • ISSUE RATING: Ba3 (Stable) / BB- (Stable)
  • SIZE: US$ Benchmark Size (At Least $500 Million)
  • MATURITY: July 2017
  • GUIDANCE: 7.50 - 7.625%
  • FORMAT: Global SEC-Registered Fixed Rate Notes
  • LISTING: Luxembourg / State of New York
  • TIMING: Today's business
  • MANAGERS: Citigroup / HSBC Holdings Plc.

Phillipines Selling Sovereign Bonds -- Window of Opportunity Was Left Open by Brazil, Colombia

The Phillipines is also selling bonds today:

  • Issuer: Republic of the Philippines
  • Ratings: B1/BB-/BB positive/stable/stable
  • Size: US$ Benchmark (Minimum $500 Million)
  • Maturity: June 17, 2019
  • Pricing: Expected NY today
  • Leads: Credit Suisse / Deutsche Bank / HSBC Holdings Pls.
  • Listing: EuroMTF Luxembourg

Earlybird, Jan. 7, 2009

Newspaper headlines for Jan. 7, 2009

  • BRAZIL -- Lula's Oil Self-Sufficiency Seems to Be Nothing Else But a Mirage (Estado): According to this Estado editorial column, oi self-sufficiency in Brazil is lies, lies, lies. Brazilians spend more buying fuels from abroad than what they earn with exports of oil. This also means that Petrobras is failing to meet any of the production goals imposed by the government. Shares of Petrobras are lagging behind alongside most of its industry peers, of course, but there is also an element of investor's lack of confidence about the quality of its management.

  • U.S. -- Fed Seeks Revival of Inflation Targetting System Discussions (Bloomberg): The main concern is running out of policy options to fight deflation at a moment when the economy's recession seems it will be more severe than initially thought. By setting an open, explicit goal for price increases, the Fed would adopt a measure used in other developed economies to anchor policy and build credibility with the public.

  • BRAZIL -- Pasta Maker J. Macedo Buys Rival, Signaling Corporate Consolidation Efforts Amid Crisis (Valor): Brazilian pasta maker J. Macedo paid an undisclosed amount to buy its rival Chiarini. The transaction will give J. Macedo more expressive participation in the state of Minas Gerais, the third largest in Brazil and where Chiarini is based. Remember that J. Macedo sold local debt in Oct. 2007 to pay for new acquisitions and restructure some old debts. Readers might not have access to this link.

  • COLOMBIA -- Tiempo Column Urges for Fuel Price Reductions (Tiempo): What the Uribe administration is doing, the editorial says, is using free market principles to take advantage of citizens and companies saddled with very high fuel costs. It shows the government's lack of interest towards the citizen's finances. Nice read, worth spending some time thinking about the message.

  • U.S. -- Obama Sees Budget Gap Reaching $1 Trillion (Reuters): Well, we expect that the economic salvage package maintains its focus.

  • PERU -- Curious Anti-Crisis Plan Implemented in Peru (Comercio): According to the newspaper, cabinet ministers will have to meet every 15 days to inform of the degree of progress in their ministries' most important programmes. This comes one day after ministers decided to shrug off a two-digit increase in their salaries (during times of crisis!!!) We'll see how the plan goes ...