Monday, 12 January 2009

Korea's Kexim Raises $2 Billion With Bond Sale. Yields Surge!

South Korea's Export Import Bank of Korea (KEXIM), check this out guys, an Aa3 rated issuer by Moody's, sold $2 billion of senior fixed rate notes to international investors at a yield of 6.25 percentage points spread over the mid-swaps rate. Investors who participated in the transaction told us that before books were closed, the most likely scenario for the sale was a spread close to 7 points over the M/S rate (as the mid-swap rate is known by jargon.)

Minutes before getting the results, we received conflicting pricing talk. The five-year debt was seen selling at around ''668 to 670´´ points, and was to be priced at a spread of 6.8 points compared to the equivalent five-year Treasury yields. The yield for the five-year Treasury was 1.44 percent today. Conditions in the marketplace, thus, still remain challenging. See how many banks were handling this sale (they probably agreed to trim fees to win this allocation): Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc. (I was told it's the lead manager,) Merrill Lynch & Co., Royal Bank of Scotalnd Plc.

You, dear reader, may wonder why I am writing about Korea, when this blog refers to Latin America (specifically.) The Kexim bond probably will provide a benchmark for corporate bond sales in Asia, and therefore, may give us a hint whether corporate borrowers in other emerging markets (e.g. Latin America) are ready to jump off and tap the markets. This sale will indeed proof whether other South Korean companies (especially banks) can access to funds -- giving us some indication about the situation in credit markets. South Korea, as some of you may know, has been badly hammered by the credit meltdown and the global recession -- the won plunged against most currencies and the nation's companies have been shuttered off wholesale funding.

If I were Petrobras (a BBB+ rating at Standard and Poor's -- two levels above the sovereign,) I would think it twice before going to the debt capital markets -- even as the window of opportunity was open with last week's sovereign bond sales.

Goldman Sachs Sees Rough Ride Ahead for Brazil, Mexico

On a Jan. 9 report, Goldman Sachs revised down its 2009 macroeconomic outlooks for Brazil and Mexico. The shop warns of the rising danger of using excess fiscal savings or monetary policy to spur growth at a moment when imbalances can get bigger and harder to control. According to Goldman, ''the large global financial shocks will shift the balance of payments of Brazil and Mexico to deficits in 2009. Such deficits would make adjustment a more credible policy choice than counter-cyclical measures.´´

For Brazil, Goldman expects the economy to shrink a seasonally-adjusted 1.5 percent in the fourth quarter;
2009 growth is expected at 1.25 percent, down from a previous forecast. The forecast for inflation is also down. Goldman expects cumulative reductions in the Selic rate amounting to 250 basis points by Sept., from a previous estimate of 150 basis points. ''However, we still believe that COPOM will start by cutting the Selic by 25 basis points (probability of two-thirds) at the meeting scheduled for Jan. 21. We ascribe a probability of one-third that COPOM would start the easing cycle with a rate cut of 50 basis points.´´

In the case of Mexico, Goldman maintained its initial forecast of an economic contraction of 0.5 percent this year. As inflation declines, the Banco Central de Mexico will trim the TdF rate, beginning Feb. 20, six times this year by 25 basis points per meeting, to 6.75 percent by July. In general, as a note and faithful to my years of experience covering regional economics for Bloomberg, Goldman's economic research team was always one of the top three in market predictions accuracy in Latin America -- and the sharpest in its opinions about policy making.

Clearinghouses Volumes To Fall, S&P Says. What Does This Mean For BM&FBovespa?

Standard and Poor's said in a report released Jan. 9 that the global exchange and clearinghouse industry will experience a downturn in volumes and transactional revenues this year. Nothing surprising. The companies were becoming accustomed to increasing trading, clearing, and settlement volumes. For some institutions, such as BM&FBovespa, this could be the first down year since they became public companies.

There will be fewer IPOs and bond sales this year, and the most likely scenario in the derivatives markets is that trading may decrease. Last month, the company reported that equities and fixed-income markets traded 71.70 billion reais in November (a total of 5.54 million trades,) compared with 122.54 billion reais traded in October (a total of 5.54 million transactions.) The drop was .. eehhmm, 41 percent! Companies listed in the exchange lost 20 billion reais worth of market value in the same period.

The bad news don't stop there: Trading of interest-rate futures contracts totaled 6.92 million contracts, down by about half from the 13.77 million traded in October. Currency futures traded 4.95 million contracts, compared to 8.09 million in the previous month. Ibovespa futures traded 1.4 million contracts, compared to 2.29 million in the same period. Investors do not seem that confident on the BM&FBovespa story. Check the price graph (obtained from Yahoo!Finance).

IDEAGlobal Sees Larger Brazil Rate Cut;

Analysts at IDEAGlobal, the New York-based market research company, are beginning to forecast a larger cut for Brazil's Selic benchmark interest rate target than previously expected. Whereas Brazil's industrial production fell by 6.2 percent in November on a year-on-year basis and car production staged a record 54 percent plunge, slowing inflationary pressures is also paving the way for Banco Central do Brasil to assume a more aggressive easing action on Jan. 21. ''We have revised our call on the Copom's upcoming decision to a 75 basis-point cut to 13 percent (previous forecast was 50 basis points to 13.25 percent), yet would not be surprised to see the BCB cut 100 basis points,´´ IDEAGlobal says in a report distributed to clients last night.

On the inflation front, price increases staged a dramatic slowdown in the last three months on the back of weaker economic activity and a significant contraction in credit activity, IDEAGlobal says. The BCB is, therefore, running out of excuses not to implement a more lax interest rate policy.

Because the outlook is deteriorating, it is clear that the most recent economic readings point to an additional element of pressure upon central bank board members -- politics. The climate in Brasilia ''isn't any good at all, it's worrisome,´´ according to a leading ruling party lawmaker who spoke in the condition of anonymity to this blog on Friday. Politicians will likely this week begin to press the BCB to undertake faster and more decisive actions to ease the impact of the credit crisis on the $1 trillion economy, the lawmaker said. BCB President Henrique Meirelles (photo) is probably going to be more flexible this time -- remember that the number of analysts forecasting growth stalling in the first half of the year is growing by the day.