Friday, 23 January 2009

Israel Electric Bond Sale Data

And the final result is:

Issuer: Israel Electric Corp. Ltd.

Size: $500 Million

Maturity: Jan. 28, 2020

Coupon: 9.375% (Semi-annual)

Issue Price: 99.158% of principal amount

Yield to Maturity: 9.5%

Spread to Benchmark Treasury: 684 Basis Points

Benchmark Treasury Price and Yield: 109.11%; 2.66%

Gross Proceeds to Issuer: $495.79 Million
Ratings: Moody’s: Baa2 / S&P: BBB+
Book Managers: Citigroup Global Markets Inc / JPMorgan Securities Inc.

Co-Managers: Credit Suisse Securities / Goldman Sachs & Co. / Merrill Lynch & Co. / Morgan Stanley & Co.

Israel Electric Seen Closing Bond Sale Today. Latest Pricing Puts Yield at 9.75 Percent

This is the latest data regarding Israel Electric Corp.'s bond sale. expected to be completed today. The use of proceeds is for new investment and general corporate purposes.

Issuer: Israel Electric Corp. Ltd.

Ratings: Baa2 / BBB+ (Stable/Negative Watch)

Type: Senior Secured Notes

Maturity: January 2020

Size: Benchmark Size in U.S. Dollars (At Least $500 Million)

Yield Guidance: 9.5 - 9.75%

Bookrunners: Citigroup Inc. / JPMorgan Chase & Co.

Co-Managers: Credit Suisse Group / Goldman Sachs Group Inc. / Merrill Lynch & Co. / Morgan Stanley

Argentina: Guaranteed Loans Swaps a Done Deal? Swap of Bodens May Come Next

Ambito newspaper reported today that the government already sealed the local tranche of the guaranteed loans (GLs) swap. Investors have submitted bids worth $3 billion of GLs, the equivalent to 50 percent participation of debt eligible for the transaction, according to the paper. The swap is scheduled to take place next Wednesday. HSBC Securities analysts estimated recently that a transaction in such terms would trim borrowing requirements this year by about $1 billion. One investor said that next in the government plans could be a new swap of 2012 Bodens for discounts, aimed at international investors.

Krugman Tells Valor Governments Should Spend More. His Words Can Be Misinterpreted by People Like Mantega

Yes. For people like Brazilian Finance Minister Guido Mantega articles like this in Valor Econômico may sound like music to the ears. Mantega (photo, in his version of Criswell, the bizarre predictor of events decades ago) can't probably sleep at nights, thrilled by the fact that the global crisis is helping all his predictions (and wishes) about stronger government finally come true. Nothing more fallacious than that. You see him more confident and daring and encouraged to make stupid decisions these days.

Paul Krugman, the Nobel Prize winner, is telling governments of the world, ''spend now and worry about the costs later,´´ people like Mantega risk following his instructions to the word, impoverishing our children in the meantime. Krugman should watch his tongue better. The same guys who followed Milton Friedman's creed are now seen as stupid. Krugman is worried that the Obama economic salvage package will be unable to revive the economy (Valor says the measures are preventing dismissals and asset writedowns from getting worse, not improving the situation.) Mantega yesterday pledged to increase national debt by 10 percent to beef up the state development bank with new funds and lend to the nation's companies. Produce and invest for who? Wouldn't it be logical to allow companies find their optimum level of production until it hits rock bottom? Social costs are huge but, wouldn't it be logical?

Mexico: Check for Trade Numbers Release Today

The Mexican government will release data for the December trade balance today in the afternoon. Exports and imports are falling, although their paces differ. The weakening peso is making import goods costlier, but it is a mystery whether it will help raise export values as global demand wanes. On the other hand, state-run oil company Pemex said this week that Mexico's oil trade balance turned into a deficit.

Brazil Regulator Orders 11 Companies to Restate Earnings on Confusion Over Their Reporting of Derivatives Transactions


The CVM, Brazil's regulatory body for the securities industry, will force Cia. Siderurgica Nacional (the piggy bank, sorry, the steel company of the Steinbruch family,) Votorantim Celulose (the acquirer party in the most outrageous merger transaction seen in Brazil for years,) and another nine other companies to restate third-quarter results to detail their reporting of financial-derivatives operations (click on the link for the CVM release.) Out of a sample of 148 firms, the CVM spotted flaws in the derivatives position reporting of 11 companies and urged them to ''offer quantitative and qualitative information of each and every derivative instrument they own, be them included in their balance sheets or not.´´

The list of companies is also comprised of Companhia Energetica de Sao Paulo, Klabin Segall SA, Inpar SA, Lojas Americanas SA, Sao Paulo Alpargatas SA, Sao Martinho SA, and Fabrica de Produtos Alimenticios Vigor. Securities law enforcement is badly needed, especially now that opaque BNDES lending is beginning to flush many of these companies with cash. Abuses can be committed by the management without the due care and oversight.

Earlybird, Jan. 23 2008

And these are the headlines ...

VENEZUELA -- PDVSA Running Out of Money to Fund Social Programmes (click here for link to Universal): Well, we have talked extensively about this issue. But I think it is important to make this clear -- The notes about Venezuela and PDVSA written in this blog don't aim at attacking the policies of the Chavez administration, or to push forward some kind of ''ideological agenda.´´ I might not have all the necessary elements to carry out a thorough analysis of detailed stuff, but in general, what we do here is to report what we hear from different actors. The conclusion is, after talking to relevant people who know the country and the company is ''Venezuela's economy is not cushioned against the primary and secondary effects of the ongoing foreign crisis and the fall in oil prices.´´

U.S. -- Geithner Comments on China Signal a Shift in U.S. Policies Towards China (click here for WSJ link): New Treasury Secretary Timothy Geithner started well. China has clearly been for years manipulating its currency and triggering imbalances in international trade (remember the textiles issue, for example.) Treasuries fell yesterday as investors worried that purchases of the securities from China may wane. The Paulson policy of getting the Chinese to compromise on a solution for the currency impasse was erroneous. Hopefully, the global crisis will force the Chinese to be more proactive and recognise the responsibility of being the third largest economy in the world.

BRAZIL -- Mantega Warns: State Credit to Companies Will Be Pegged to Maintaining Jobs (click here for Estado link): Jesus Christ! ''Drown yourself further in debts, and dare not cutting your costs.´´ My reading of this might be too naive, but when you use a crisis to pursue some political goals such as averting a rise in joblessness stats at the expense of the financial health of your country's companies, I am sorry, you, Mr. Minister, are nothing but an irresponsible man.

BRAZIL -- Vale Proposes Paid Leave Until May; Production is Cut (click here for Estado link): At some point unions will have to wear their yellow-green flags and admit they are asking too much from companies.

COLOMBIA -- Bogota Witnessed Increase in Murders; New Mayor Viewed as Responsible for Reversal in Security Indicators (click here for Caracol Radio link): Forty-four more murders might seem too small a number for a place like Bogotá, the capital city of Colombia -- for years and still one of the most dangerous nations. The sad part of this, apart from the increase in homicides, is the lack of effective response to the phenomenon by Mayor Samuel Moreno. The recent murder of an adolescent in Bogota's Zona Rosa district triggered a wave of absurd measures such as imposing a curfew upon teenagers in nine different city areas, forbidding people to drink in the street, among others. In the meantime, we see less police force in the streets and those who you see, are again asking citizens for bribes or fining them with no reason. City security is key for the city if Bogotá still aims at retaining its new-found status as an investment hub, -- which amidst the current crisis may be quite hard to retain.

CUBA -- Bilateral Trade With Venezuela Reaches Record. How Much Do the Cubans Really Own Their Bros? (click here for Nacional link): Well, I have heard from authoritative sources (government and opposition) that the Cubans charge too much for their ''exports´´ of physicians and sport instructors ($400 million in 2007!) That they buy oil from Venezuela at preferential rates and never pay. Well, the two countries probably got help from the Argentine statistics institute to calculate these numbers. Transparency in public accounts should be a must. Unfortunately, that is a word whose meaning disappeared from the minds of Venezuelan and Cuban government officials years ago.

U.S. -- Thain Ousted From BofA After Spending $1.2 Million in Office Redecoration, and -- Most Likely -- Lying About Merrill Losses (click here for Reuters link): Good Jesus! BofA CEO Ken Lewis hasn't saved his bacon at all. Heads were to roll after CNBC´s Gasparino reported John Thain's redecoration atrocity ... Do these guys never learn from the mistakes of their rivals? Richard Grasso had to leave for a scandalous pension package, New York former governor Spitzer quit due to his encounters with prostitutes, bankers at Societe Generale had to leave because of failing to oversee rogue trader Jerome Kerviel ... You remember all these scandals? But nothing as outrageous as Thain's redecoration of his office in NYC amid $15 billion in losses. What was he planning to tell his shareholders?

Bloomberg and the February Magazine Cover Story

Funny photo, isn't it?

Bloomberg Markets published this for its February edition. It's called
''John Thain, Merrill's Repairman.´´ (click for the link.) The lead reads: ''John Thain, an MIT-trained engineer, will have to mend morale and overhaul risk controls as head of the world's biggest brokerage. He may also have to write off billions more in bad debt.´´ A pity that he didn't manage to accomplish either of the tasks: revamp morale and risk controls. A pity he didn't see the end to the billions in writedowns. He didn't do a good job at that anyways. A pity that Charlie Gasparino ruined the party (for both the former Goldman Sachs and NYSE executive and the magazine) by reporting Thain's infamous office redecoration that cost both American taxpayers and Merrill shareholders $1.2 million.

I wonder what will be the follow-up to this one.

S&P Cuts Vitro Ratings, Citing Cash, Sales Problems in Core Markets

Standard and Poor's last night cut Vitro SAB´s long-term ratings to CC from B-, with a negative outlook. As it did with Cemex, S&P spotted serious problems in Vitro's Spain, Mexican and U.S. operations. Vitro faces a ''very restricted cash flow and credit metrics,´´ according to S&P. Free cash flow was negative at the end of the third quarter, with $155 million of short-term debt maturities compared with $70 million in cash holdings. Let's remember that Vitro was one of the many Mexican companies involved in a credit derivatives scandal that forced them to realise hefty losses last year. The company lost $320 million from wrong bets in derivatives contracts. The company closed most open positions in derivatives in December.

S&P Mulls Votorantim Downgrade On Aracruz Purchase. Merger Seems to Be Utterly Expensive and Dangerous.

Yesterday, Standard and Poor's placed its 'BBB' corporate credit rating on Votorantim Celulose e Papel on revision for a possible downgrade. At the same time, the 'BB' rating on Aracruz Celulose may be upped. Remember that last week both companies agreed to integrate (Votorantim bought a 28 percent stake in Aracruz for 2.2 billion reais; Votorantim received BNDES money to complete the transaction. The government is always there, right there, spotting wonderful opportunities to waste money at the expense of taxpayers.) The amount paid can be bigger -- and detrimental to Votorantim, -- because Aracruz's third biggest shareholder, Arainvest, has tag-along rights and therefore Votorantim will have to make an equivalent offer for Arainvest's voting shares. That would give Votorantim 84 percent of Aracruz's shares.

Obviously, a S&P action on Votorantim will follow after the ratings company figures out the real number for net debt to Ebitda that will result from the merger of VCP and Aracruz. I have seen analysts and market participants very upset at the price paid for Aracruz given its losses and the weak profit outlook for the companies. The other factor that will be gauged by rating analysts at S&P will surely be how much further access to government money (via equity or loans) will Votorantim enjoy during the completion of the acquisition. About 4 billion reais will be pumped into the new company.

I will spare you from the BS about the potential gains that the transaction brings to shareholders of both companies. Let's go straight to the point: Standard & Poor's credit analyst Marcelo Costa says ''the significant increase in leverage resulting from the share acquisition and from the losses Aracruz has reported in its derivative position would raise financial risk at the new company.'' Enough.

Brazil Beefs Up BNDES Budget by 100 Billion Reais. Where the Money Will Come From? ... Yes, That's The Answer!

Debt, debt, debt.

The state development bank, BNDES, will get an additional 100 billion reais in fresh funds to lend to companies that are facing cash shortages or need to bankroll ongoing investment projects. Finance Minister Guido Mantega (Mr. Criswell) said the money will be pumped into the BNDES in the form of government bonds (who will buy them? You, dear reader and taxpayer, via Banco do Brasil and affiliates) and through transfers from the cash cushion that the Treasury holds. Remember that the cash cushion owned by the Treasury is emergency money that the government has in case no one wants to roll over debt maturities in the local markets.

This is another step in the same direction, that is, making a stronger BNDES that helps avoid the unavoidable at the expense of taxpayers -- who always pay the bill in Brazil. The record of investing by the BNDES isn't quite remarkable: it has invested in the Votorantim-Aracruz merger (some people call it the most expensive merger in the cellulose industry,) in Sadia (yes, the same company that lied to investors over its exposure to currency derivatives and is now struggling to survive,) in the merger of Oi and Brasil Telecom (to fulfill President Lula's dream of competing with giants Telmex and Telefonica.) The list of (questionably good) investments is long.

In accessing the funds of taxpayers, BNDES will pay its own benchmark lending rate, known as the TJLP, plus a 2.5 percentage-point spread for 70 billion reais in funds. That is 8.75 percent. And the remaining 30 billion reais will pay some rate linked to the Libor (it is not clear whether it will pay a spread on that. Criswell's remarks are all about transparency.) Such is Mantega's thinking of how markets work that he affirmed that ``public banks cannot charge high lending rates,'' as if the problems was one of cutting spreads by decree. Poor us, taxpayers.

In the face of the current credit constraints, Lula expects the BNDES to act as ''lender of last resort'' for his $250 billion investment programme (PAC.) The newly-founds source of funding hasn't assuaged concerns about the government's ability to process the avalanche of loan requests. No matter how much money the government pumps into the BNDES and how much it promises to loan to businesses this year and next, companies will face extended delays in accessing BNDES loans.

But there is another reason that, in my view, is behind all this hysteria about boosting the BNDES's capital. The government is interested in building up an important participation in what they call ''strategic sectors,'' or, summarising, those that might be eyes by foreigners as acquisition targets in the future. They are quite profitable too and therefore, easy to tap as a source of jobs for ruling party accolades. Telecom, banks, real estate, commodity producers ... all these sectors are receiving BNDES money in exchange for equity stakes, convertible bond issuances, etc.

Colombian Companies May Cut Dividends Because of Economic Downturn, According to Portafolio

Portafolio economic newspaper says in a report that only banking companies and Ecopetrol will maintain dividends, while most industrial, manufacturing, commodities and export companies will slash them. The traditional allocation of earnings to dividends had a ratio of 70 percent to 90 percent of profits, but stock analysts expect that to fall to about 50 percent this year.

So, Colombian shareholders are being hit in two fronts: the decline in the price of their stock holdings (Ecopetrol has fallen about 30 percent since October) and reduced dividends. A recovery isn't expected before the end of the third quarter.