Tuesday, 20 January 2009

Reuters' John Kemp Comment on Bank Woes in the U.S., U.K.

Interesting comment by Reuters columnist John Kemp on what he calls ''the largest debt crisis in history.´´ He is definitely right. Active policies by these two governments have shown uncapable of easing the fallout in global financial companies. Citigroup stock touched $3 earlier today, and the RBS deal in the U.K. seems to be the first in a wave of bank nationalisations there.

Click here to read the entire article.

Codelco Bond Scheduled for Sale Today (Update)

Codelco, the copper producer struggling with fluctuating prices, is looking to sell at least $500 million of ten-year debt to partially finance capital expenditures and refinance debt. The price talk points at a yield of 5.5 percentage points more than the Nov. 2018 Treasury note yield. The book should be closed before 3 p.m. NYT.

Terms of the offering are:
  • Issuer: Corporacion Nacional del Cobre de Chile
  • Ratings: A1 / A / A
  • Size: Benchmark Size (At Least $500 million)
  • Maturity: 10 year
  • Structure: Senior Unsecured Notes
  • Bookrunners: HSBC Holdings Plc. /JPMorgan Chase & Co.
  • Timing: ASAP

A Different Point of View: Bush's Foreign Policy Sucesses

RealClearWorld brings this interesting piece to us. Please read this article with attention. RCW focuses on five cases, 1) China; 2) India; 3) Africa; 4) Colombia, and; 5) Military Transformation. In the case of Colombia, the argument is quite convincing.


Excerpts of Obama's Inaugural Speech

Quotes (there might be small transcription mistakes. Apologies.)

-- ''Our economy is badly weakened as a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.´´

-- ''Homes have been lost, jobs shed, businesses shuttered. Our health care is too costly; our schools fail too many.´´

-- His remarks on the markets were clear of what should be expected from him: ''The question we ask today is not whether our government is too big or too small, but whether it works.´´ Obama said the market’s “power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control.´´

-- The solution to America's problems ''will not be met easily or in a short span of time. But know this, America: they will be met.´´ He drew a lasting ovation from the crowd.

-- ''What the cynics fail to understand is that the ground shifted beneath them, that the stale political arguments that have consumed us for so long no longer apply.´´

-- The solution to the crisis depends on ''ultimately the faith and determination of the American people, upon which this nation relies.´´

-- International relations, and this is a message targeted at Muslims, ''will be based on mutual interest and mutual respect.´´ And he sends a message to terrorist nations and individuals:''We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken.´´ He added that ''we will defeat you.´´

-- ''What is required of us now is a new era of responsibility, a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world.´´

Summarising, Obama is demanding from Americans leadership and responsibility, and promised to make the state work for the citizen. Realistic but spirited words of a leader who is charged with helping pull the economy out of its deepest crisis in decades, restore the standing of the U.S. in the world and mend relations with emerging and poor nations.

Obama Inauguration (Comment 1)

This party cost $140 million to American taxpayers. So far, it's been quite dull. The hungover will begin tomorrow so, no worries.

I found very emotional the cheering and the applauds when the crowd heard the name Barack Obama announced. The most amazing aspect of every and each of these dull ceremonies is the expression of spectators. I have seen a few inaugurations in my life as a journalist, but one that I remember very fondly was the Luiz Inacio Lula da Silva inauguration on Jan. 1, 2003 in Brasilia -- how it sparked such sense of optimism across Brazil was wonderful ... it was a beautiful day. It was the day of people.

Such a pity his government turned into the incubus it is today.

Changing subject, was it my impression, but did Aretha Franklin sing a bit out of key?

Codelco, Copper Prices Plunging, Seeks to Raise Money in Bond Markets

This just came out ... Codelco, prices fluctuating violently, is looking to sell at least $500 million of ten-year debt to partially finance capital expenditures and refinance debt.

  • Issuer: Corporacion Nacional del Cobre de Chile
  • Ratings: A1 / A / A
  • Size: Benchmark Size (At Least $500 million)
  • Maturity: 10 year
  • Structure: Senior Unsecured Notes
  • Bookrunners: HSBC Holdings Plc. /JPMorgan Chase & Co.
  • Timing: ASAP

LatinFinance Reports Sadia Said to Be Looking for Equity Injections

Brazilian food producer Sadia, the first big company in Brazil that last year reported losses for bad bets on derivatives, is said to be looking for 1.5 billion reais in fresh capital, according to LatinFinance, the New York-based finance magazine and newsletter. Sadia is apparently courting private equity funds for money, LatinFinance said, citing market sources. Such an injection of new capital would likely dilute the participation of current majority shareholders. LatinFinance says that Sadia´s market capitalization doesn't reach 3 billion reais.

''The move demonstrates how debilitating losses such as the ones taken by Sadia, Aracruz and Votorantim can be,´´ LatinFinance writes, and it seems to me there is no better conclusion than that. These companies thought that they would be willing to get away with the losses, but fortunately that hasn't been the case. Brazil faces a serious problem of weak corporate governance enforcement -- and that is not necessarily the fault of the regulatory agency but of its meager budget and enforcement capabilities. The government should be more committed to implementing clearer rules and enforcing them effectively. But ... one skeptical mind could think that such mess in the corporate sector is beneficial to President Lula's goal of increasing state participation in the private economy sphere -- or take companies hostage by offering them funding and political perks.

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.

Israel Electric Considers Tapping Bond Markets With Benchmark-Size Issue

This just happened a few minutes ago. Israel Electric Corp., rated Baa2 by Moody's Investors Service and BBB+ by Standard and Poor's, tapped JPMorgan Chase & Co. and Citigroup Inc.to handle an offering of U.S. dollar-denominated bonds to international investors, as part of a MTN issuance programme. The size is likely to be benchmark size, or at least $500 million of bonds will be offered, according to a mandate obtained by MM by e-mail.

Subject to market conditions, a benchmark size transaction should follow a roadshow in European and the U.S. markets starting today. In recent weeks, emerging markets sovereigns (especially Latin America and Asian countries) as well as two South Korean companies, offered bonds to investors in what most saw as the opening of a window of opportunity for borrowers to raise cash in a challenging market. Investors might be becoming more selective in their bond purchases in the coming days. We will keep you informed of this specific transaction.

Earlybird. Jan. 20, 2009

Headlines for Tue., Jan. 20:

COLOMBIA -- Irresponsible Governors, Whinny Businessmen and Bailouts: The Case of Soccer Team Tolima (Tiempo): A few readers of this blog have voiced their concern over the extent of government bailouts and their scope;
some of them have said the crisis offers an excuse for politicians to fund the most bizarre, extravagant, flamboyant and unnecessary projects. We start that list in Colombia. A whinny businessman with clout, prestige and money asks for bailout money; right after that, governors, senators, cabinet ministers, presidents rush to lend him a hand -- and taxpayers' money. That is the case of Gabriel Camargo (photo,) the Colombian poultry tycoon, former senator and political baron in the provinces of Cundinamarca and Tolima. He threatened to withdraw his football team, Deportes Tolima, from the national league because of the global crisis (!!!) Yesterday, Tolima's governor and regional politicians pledged to use money from the province's liquor company to save the team. I mean, if I own a football team, and I make lots of money selling players and all that, why the hell do my countrymen have to bail me out if publicity revenue dries up? Tolima is one of the poorest regions in Colombia and most afflicted by guerrilla- and drug trafficking-related violence -- the governor should invest in rural areas and homeless families first, not on a privately-owned football team. We will try to highlight similar cases across Latin America.

U.S. -- The Big Day Has Come:
Barack Obama, U.S. President No. 44 (??), will likely try to cheer up his disheartened countrymen, promise to fix the economy problems, overhaul the way relations with other countries are conceived, compromise more, impose less ... Obama already made history. Let's enjoy the day, because Wednesday will surely be a day full of sad announcements.

U.K. -- Banks Given More Money as RBS Posts Record Loss (Reuters): Another one bites the dust. Royal Bank of Scotland Plc., part of the winning consortium that broke ABN Amro Holding into three pieces in the largest ever banking takeover, will have to be fully nationalised by the British government. Yes, 282 years of history gone down the drain, thanks to greed and mismanagement. Yesterday, Chancellor of the Exchequer
Alistair Darling offered to exchange the government's preferred shares in the lender for ordinary stock, which may boost its stake to 70 percent from a bit less than 60 percent.

PERU -- Minister Valdivieso Quits; Former Minister Carranza to Replace Him (IncaKolaNews): No one masters the art of telling the truth better than
Otto Rock (photo, left.) I have to say that I always had a hard time writing these stories about cabinet reshuffles. First, because we never happen to know the real reasons of minister departures. We, journos, sometimes can make an educated guess and hit the nail on the head. Bingo! well, Ok, the I-was-lucky-kind of thing. It's pure speculation. Second, because there are so many names to write that you can often have typos. BS. But the IKN version of the two fat guys can't be wrong! First, because this happens all the time in Peru. Second, because we will be able to see whether Carranza is a humble guy ready to undo part of his legacy -- we could credit him with having done enough to overheat the Peruvian economy and, in the process, having done very little to help improve income redistribution.

PERU -- Minister Carranza, 'Austere Man,´ May Play Hardball with Social Cabinet (Notas Desde Lenovo): Well, if Otto is right about the two fat men, Jacqueline Fowks tell us what to expect from Mr. Carranza. ''He make some cabinet ministers shiver,´´ she says. According to Jacqueline, the government is failing to give a satisfactory reason for Valdivieso's departure. Who does know what happened?

BRAZIL -- Lula, Union Leaders Discussed Job Cuts, Interest Rates (Estado): Last night, President Lula and leaders of six union confederations discussed the recent wave of dismissals across the nation. Job reductions will take place for a few more months until the financial and operational situation of exporters and other companies find rock bottom. Lula will slowly begin to voice his support for a flexibilisation of labour rules for companies, because he is concerned over the rapid pace of job losses taking place in Brazil and the deterioration of cash reserves for most companies. He probably now understands that jobs cannot be created if capital is being destroyed. He now probably understands the meaning of being productive and the importance of adjusting output according to the intensity of economic cycles. According to daily O Globo, Lula told unions that he is considering linking a pledge to cut taxes for companies to their commitment not to fire their workers. In the meantime, unions will stage more
demonstrations and negotiations for more flexible work conditions will continue before the government decides to endorse changes in labour rules and reductions in taxes for the nation's beleaguered companies.

Bye ... Please Clean the Horse Shit in Crawford and Don't Bother to Come Back!

Well, we don't wanna sing ''No es más que un hasta luego, no es más que un breve adios´´ to him. We all really want him to leave. His bad use of the English language, or his continuing gaffes, or his beady little eyes are not a problem. His cynism, his lies and his irresponsibility gave the world eight years of bubbles and wars ... and another four of bust. Thank you. You won't be missed.

Click here to see some shocking numbers regarding approval ratings for several U.S. presidents, all of them Post-War. I usually don't sigh with relief when a politician takes office, and this isn't the exception. But this is the first time I say it publicly: Go away, you dumb!

MM Latin Political Risk Bulletin (Week of Jan. 19-23)

COLOMBIA -- Senator Vargas Lleras, Uribe Supporter, Voices Discontent With Government (click here for link): Senator German Vargas Lleras is on the eye of the hurricane these days. The staunchest supporter of President Alvaro Uribe during his first term (2002-2006), Vargas is now alleging the government is persecuting him for refusing to back a plan to allow Uribe to run for a second re-election. The tussle isn't doing him any good: the government is managing to break the unity of his Cambio Radical party, which is losing key posts, and is portraying him as a traitor to the cause. Vargas is also contending for the presidential nomination but ... what parties would be willing to back his name at this point? This is one of the most important political stories taking place in Colombia. Last night, Cambio Radical said it would endorse allowing uribe to seek a second re-election but only from 2014. We expect Congress to pass a bill allowing Uribe to seek another re-election, but not in 2010.

ECUADOR -- Correa's Mining Law Begins to Stir Opposition; We Expect More Clashes (click here for link): The new mining law in Ecuador is already stirring opposition. The National Indigenous Confederation is holding a national demonstration Tuesday. President Rafael Correa is likely to call on his supporters to fight any opposition to his law. Check on Inca Kola News for further information on this. Nevertheless, here are the main points of the law (a courtesy of IKN): a) open pit mining with further environment controls will be allowed; b) concessions will have no limits; c) depending on the size of the mine, royalties will be between 3 percent and 8 percent; d) tax breaks will be awarded for exports and sales taxes. It reads very indulgent to mining companies -- and that is the reason why the CONAIE is against it (it considers it damaging to the environment, and too easy on foreign interests.)

BRAZIL -- Lula Signals Leaning Toward Interests of Companies in Labour Issues (click here for link): The carrot and the stick. Lula told labour union leaders yesterday about his intentions to propose lawmakers a 12 percent increase in the minimum wage to 465 reais a month before May 1. The proposed pay raise, far from being a concession to unions, has in my view a political meaning -- most pension and work benefits area pegged to the minimum wage (making the latter a powerful political weapon.) Afterwards, he told them that companies need cash (yes, cash, not whinny workers banging the doors,) and basically ruled out endorsing a union-sponsored plan to put companies to pay for an increase in unemployment benefits and job stability. So, alea jacta est: unions will continue asking for the impossible, Lula finally understood the real problem that corporate Brazil is going through and companies won a new ally. The easing of labour rules might be difficult but it will certainly be discussed and perhaps, why not, passed at some point.

VENEZUELA -- Referendum, Oil Prices and Chavez: an Update (click here for link): Chavez seized last week $12 billion from international reserves to beef up the Fonden with more petro-dollars. He is seeking to get passed the referendum on the end of presidential limits to perpetuate himself in power. Now, the initiative is clearly unconstitutional, as leaders of the Podemos party said yesterday. It's hard to make a call on the outcome of that referendum -- but one thing is clear. Whatever the result, Chavez will continue with a policy of uncontrolled spending, restrictions on imports and exchange rate trading and price controls.

CUBA -- Fidel Castro on his Death Bed; No One Dares Forecast What Will Come Next (click here for link): When on Jan. 1, Cubans were celebrating (some??) the 50th anniversary of the revolution, Fidel Castro failed to appear in official media. Fidel only sent a very short anniversary greeting in the official newspaper. Sources close to President Lula of Brazil said he was ''shocked´´ to see Fidel almost non-responsive, in bed, in a recent visit. The thing is, Fidel will die and what will happen to Cuba after that? It will for sure put more pressure on brother Raul to implement broad reforms to jobs, immigration, and the agriculture and services industry. Within three to five years there will be a new discussion in Cuba. It is unrealistic to think that the final caretaker of the Revolution will change the premises of the Cuban economy, the armed forces and political system in the aftermath of Fidel's death. The most pressing short-term issue for the Cuban government will be finding a way to resume negotiations with countries other than the Bolivarian Axis, and start talks with the U.S. Cuba will need more investment amidst the current global crisis.

S&P Cut IUSA Ratings, Citing High Debt and Decline in Construction Activity

Standard and Poor's cut Mexico's Industrias Unidas SA's credit ratings to CCC+ from B-, keeping the outlook on such ranking as negative (or that within the next six months they might be downgraded again.) The company is facing a decline in operating revenue due to fallout in the construction industry in Mexico and rising exposure to fluctuations in copper prices. The company, says S&P, is at risk of failing to refinance the credit facilities of its units int he U.S., which mature in March and May this year. IUSA had at the end of the third quarter cash of $35 million compared with maturing debts worth $221 million this year.

The construction industry in Mexico has been facing
imbalances over the past 18 months. The slowdown experienced in the sector has affected certain regions of Mexico more than others. Flattening home prices over the past year, especially for the low-income segment, have created stress for some mortgage lenders (e.g. Metrofinanciera.) Loan concessions, albeit increasing, are slowing drastically. Housing demand may not react to the lower prices anytime soon, as unemployment climbs and exports to the U.S. decline in the back of that nation's recession.

Citigroup Saga -- Nikko Up For Sale. Next: Brazil

No need to say anything else. A WSJ report this morning says:

TOKYO -- Citigroup Inc. said it has earmarked its Japanese retail brokerage operation, Nikko Cordial Securities, for sale, an abrupt reversal that underscores the severity of the bank's plight.

Citigroup, which revealed an $8.3 billion quarterly loss on Friday, said Nikko Cordial Securities, Japan's No. 3 brokerage in terms of assets, will be categorized as a noncore asset alongside other peripheral or ailing businesses.

Just three days earlier, the U.S. bank had said it wasn't including the Japanese brokerage in the spinoff of its other retail brokerage business, Smith Barney, to Morgan Stanley.

People familiar with the matter ...

São Paulo/Brazil Politics: Alckmin Accepts Appointment to Governor Serra's Cabinet. Who Wins and Who Loses With That?

''Lo bueno si breve, dos veces bueno,´´ used to say Spanish philosopher Baltazar Gracián. ''Less is more,´´ is probably the closest you have in English to it. Yesterday, former São Paulo State Governor Geraldo Alckmin (photo, left) was appointed by current Governor José Serra (photo, right) to the post of Development Secretary. Clearly there was a political move here. Who wins and who loses with this?

1) Serra -- winner. Why? This only opens more space for his presidential candidacy in 2010. By tapping Alckmin to a post at the state governorship, Serra is making him the opposition Social Democracy Party's candidate for the government of São Paulo. The PSDB has no other candidate than Alckmin for that post.
2) Alckmin -- winner. Why? Alckmin's career was over by the moment he lost a run-off with President Lula in the 2006 election. His failed attempt to divide the PSDB-Democratas party coalition last year by entering the mayoral race for the city of São Paulo apparently was the last nail on his coffin. But Serra, as opportunistic as he is, saw a chance to dilute Alckmin's potential opposition to his presidential bid ... by naming him to his cabinet. And putting him again on track to run as a candidate for governor in two years.
3) Aecio Neves -- loser. Why? Neves (photo, centre) is as strong a candidate for 2010 as Serra is. Neves, the governor of Minas Gerais state, counted on Alckmin to oppose a potential Serra candidacy -- or at least tame Serra's chances inside São Paulo. With a truce between Serra and Alckmin being apparently signed, Neves is seeing his chances of winning the presidential nomination by the PSDB going up in smoke.