Tuesday, 27 January 2009

Pathetic: People in Facebook and Some of Their Stupid Groups

IncaKolaNews just posted this: Click here for the story. A group was created for hiring a hitman to kill Evo Morales. The founder is even offering himself to kill the Bolivian president in case the group fails to hire a gunman. Jesus! Remember that the force and reach of some of these Facebook groups is remarkable (many people credit one of them with having organised a march against kidnappings that gathered almost 4 million people last year.) How ridiculous this Evo Morales group can be?

Important that we sit down and think about this, and what we do. We, I say the media, are responsible for some of the biases against certain politicians or public people. But we have to be and quick radical at condemning all these expressions of hate and intolerance.

Fresh Stuff: Pemex Taps Investors to Offer Ten-Year, Dollar-Denominated Bond

Petroleos Mexicanos SA, the beleaguered oil state company of Mexico, is offering a benchmark size issuance of ten-year dollar debt. The banks managing the offering for Pemex are HSBC Holdings Plc., Calyon SA and Citigroup Inc. The sale may happen as early as today, according to our sources. Here are the preliminary terms:

Issuer: Petroleos Mexicanos (PEMEX)

Joint Guarantors: Pemex Exploracion y Produccion / Pemex Refinanciacion / Pemex Gas y Petroquimica

Structure: Senior Unsecured Notes -- Direct Obligation of PEMEX

Ratings: Baa1 / BBB+ / BBB (STABLE / STABLE / STABLE)

Size: Dollar Benchmark (At Least $500 Million)

Maturity: 10 year

Price Guidance: Treasury note with coupon 3.75 percent (Nov 2018) + spread (TBD -- To Be Defined)

Use of Proceeds: To finance investment program or to redeem, repurchase or refinance indebtedness

Bookrunners: HSBC Holdings Plc. /Calyon SA / Citigroup Inc.

Co-Manager: Banco Santander SA

Timing: ASAP

Camargo Correa to Pay 2.1 Billion Reais for 14.5 Percent Stake in CPFL. Votorantim is Raising Cash Quite Fast, May Avoid Downgrade

Camargo Correa, the Brazilian engineering company involved in a range of businesses from heavy construction to energy, agreed to pay 2.1 billion reais for 14.5 percent of CPFL, the electricity distributor controlled by the Votorantim group. Yesterday we posted here (click right here) the S&P warning on the creditworthiness of the Votorantim group and its imminent need to sell assets to improve debt metrics. Well, these guys are moving quite fast to get rid of businesses or raise cash without losing control of some key units. Downsizing is a good move in moments like this, some say.

Meirelles Learn From Lula Cabinet to Play Hardball with Banks

Henrique Meirelles (photo,) one of the few serious policy makers that are left in Brazil these days, is expected to announce by the end of this week rules that will allow 4,000 and more companies to access international reserves through special credit facilities. The measure was announced late last year as a way to protect companies reeling from a recent sell-off in the real. Folha de S. Paulo says in a short note today (click here for link) that financial institutions will not be given access to this credit facilities, to press them to lower lending rates charged to companies and consumers.

While it's desirable to see banks lowering their spreads now that local interbank credit is not under stress, it is stupid to expect private lenders to do this by decree. The government is committing absurd mistakes in the handling of this issue of credit, such as conditioning BNDES credit lines to companies to their maintaining idle staff in their payrolls ... how anti-economic is that? The government is seriously concerned with the unemployment data readings, meaning that they see the economic downturn as prolonged and painful.

LLX Get Money From BNDES, Banks for PF Minas-Rio Project

LLX, the logistics arm of Brazilian billionaire Eike Batista (photo,) signed 1.321 billion reais worth of financing agreements with the government-controlled development bank and two major commercial banks, according to a statement sent this morning. The accords have a total amortization schedule of 12 years and 2 1/2 years grace-period.

The transaction was structured as a
project finance with a debt/equity ratio of 73 percent to 27 percent, with half of the money being disbursed in the form of a BNDES direct loan, while the rest of the money to be offered by Unibanco and Itaú, the two domestic banks that agreed to merge in November. ''With the completion of this phase, LLX Minas-Rio is now fully funded to carry out its investment plan, thus enabling the handling of iron ore from Anglo American mines in the State of Minas Gerais, the anchor project for Açu Super Port,´´ said LLX in its regulatory filing statement.

Poll Closed. About 70 Percent of Those Surveyed Say Economy Won't Get a Quick Fix Under Obama

The question of our first MM poll was whether you, dear reader, thought that Barack Obama would get to quick the U.S. economy in a quick manner. Seventy-three percent said no. The rest said yes ... there were not many readers participating in this poll (only 15 readers out of an average 110 that we have during business days.)

As we pointed out earlier this morning, the challenges facing the Obama administration are diverse, huge and quite difficult. Those related to banks, to the real economy, the administration of the TARP funds, their quick disbursement, trade, China, .... The list seems interminable. But Obama started diligently by pressing Congress to confirm his nominee to the Treasury post, and acting quickly on highly-awaited measures such as the closure of Guantanamo -- nothing more than a vow of good faith to the world.

The Good, the Bad .. Bank. It May Turn Ugly Too, Some Analysts Say

Watching CNN En Español last night, I learned that the proposal of creating a bad bank is gaining traction among analysts and government officials in the U.S. According to a recent JPMorgan Chase & Co. report, a bad bank would form part of a broader solution for the financial crisis afflicting America. But, what is a bad bank?

A bad bank would be a company that would remove the bad assets from the balance sheet of the financial system and manage them. The rationale behind this idea is that, if the financial system fell into a situation where the financial value of assets dropped below the value of liabilities, the social cost of reestablishing credit formation would be quite high. The payments and credit system would probably collapse. All that said, the creation of a bad bank would be desirable. But there are challenges facing policy makers who endorse that idea.

As JPMorgan puts it, ''removing bad assets from bank balance sheets may resolve some uncertainty surrounding the health of banks, but it is still the case that many banks will need more equity capital.´´ Last night, former Colombian Planning Director Juan Carlos Echeverri, speaking in CNN, suggested this idea as a sort of panacea for the current problems hampering the financial system of the U.S. He may be, not surprisingly, endorsing an incomplete idea. A bad bank doesn't resolve the problems of capitalisation facing dozens of financial institutions in the U.S. nor offers an automatic solution to the problem of pricing distressed assets that are putting balance sheets under strain. James Saft, the Reuters columnist, wrote about this issue yesterday in a piece called ''Nationalisation: Friend or Foe.´´ Click here to read his very insightful column. Thanks to Mr. Echeverri, we remembered to mention this issue in the blog. The debate is open. As Saft puts it, ''the betting is now that the U.S. will opt for some sort of a 'bad bank´aggregator which will buy up doubtful assets from banks, with the emphasis on keeping as many as possible operating as publicly traded entities which, once shorn of their bad debts, would be viable and would lend.´´ But lending in the current circumstances may not only be risky, but also imprudent.

If the bad bank idea is pushed forward, commercial banks and insurers may ''run a real risk´´ as the new entity would rid them ''of assets that are bad now leaving them (banks and insurers) to founder on new bad loans later.´´ Although the cases of Scandinavia, Mexico, Colombia and the U.S. itself (the HOLC of the Great Depression) offer valuable experience to deal with the vicious circle of bad loans, declining banking asset values, economic recession and government pressure to kick start lending, the questions remains on the size, extent and duration of the ongoing recession. The risk, Saft says, is ''that we could find ourselves in six or nine months in exactly the same situation, but with banks crippled by a new wave of defaults and with the non-financial economy in a much worse state.´´

S&P Finally Does It: Votorantim Group Ratings Under Review for Downgrade

Standard and Poor's revised its outlook on Votorantim Participações SA to negative from stable. The risk of downgrading will persist for at least three months. "The outlook revision reflects the increasing uncertainty that the group's consolidated credit metrics will meet our long-term targets for the current rating amid the negative operating and financial outlook for 2009,´´said analyst Reginaldo Takara in a note released last night.

The group's main business units are already facing unfavorable pricing and market conditions, at a time when consolidated financial leverage is historically high after significant investments in capacity expansions and acquisitions. said S&P, which ''Although the difficult economy will pressure cash flow, we believe the group has room to adjust its strategy to preserve liquidity and reduce net debt, bringing cash flow coverage more in line with the current ratings,´´praised the merger between Votorantim Celulose and Aracruz, saying it may help streamline operations (??? the market thinks the opposite, dudes!)

Earlybird, Jan. 27, 2008

The headlines are:

BRAZIL -- Corporate Defaults Reached Ten-Year High (click here for link to Estado's story): Although Brazil's corporate sector is far from facing a systemic crisis, domestic bankruptcy filings soared 146 percent in 2008.In December corporate defaults jumped 36 percent in December. A major area of concern for companies and banks is the rapid deterioration in consumer creditworthiness. Personal loan default rates and the number of dishonoured cheques are soaring. This can only get worse in the first half of 2009 as job losses deepen.

BRAZIL -- Fraga is Confident that Rates Will Drop Fast (click here for Estado story): The most prominent central bank hawk is signaling that the space for rate cuts is ample. Arminio Fraga is someone who investors should always listen to.

ARGENTINA -- $23 Billion Fled the Country in 2008, Most Since 2001 When the Government Devalued the Peso (click here for link to Nacion's story) : The peso touched 3.5 to the dollar yesterday. Unfriendly policies that punish investors and give privilege to political decisions, and lack of transparency seem to be feeding the hemorrhage.

WORLD -- Nations Turn to Barter Deals to Secure Food (click here for FT story link): As trade finance dries up, poor countries are resorting to barter to buy food. One of the aspects that have made the Brazilian government very active in fighting this credit crunch in the issue of trade finance (Brazil is a major food exporter.)

U.S. -- Geithner Sworn In as Treasury Secretary (click here for WSJ story): No one would like to wear his shoes at this moment. He has a hell of a task ahead -- drafting a quick recovery plans for the financial sector, pushing for the aid package, dealing with a quick surge in joblessness that will be on for years maybe, proceeding with a few bank nationalisations if things get worse in the marketplace ...