Wednesday, 28 January 2009

BNP Paribas Lost AA+ Counterparty Credit Rating With S&P

Standard and Poor's lowered its long-term counterparty credit rating on BNP Paribas SA, the French lender, to AA from AA+. S&P removed BNP from CreditWatch, where it was kept since Dec. 17. The action looks a bit surprising, because BNP Paribas has navigated through the credit better crisis in better shape than most of its global rivals.

"The rating action reflects the material negative impact on BNP Paribas' financial profile of the current market dislocation and rapidly deteriorating global economic cycle,'' said credit analyst Bernard de Longevialle. "We expect a significant decline in profitability,'' and ''recovery prospects'' remain limited, according to S&P. Net income probably dropped below 3 billion euros in 2008, compared with 7 billion euros in 2007, according to S&P estimates.

Despite the news, financial shares across the world went higher, on optimism the new U.S. administration will create a bad bank to absorb distressed assets (click here to read our previous posting on the bad bank. I think it went out yesterday.) The movers are: Wells Fargo, which gained more than 10 percent after refusing more government aid; the star of the day, Lloyds Plc. of the U.K., with a 43 percent gain today. Citigroup Inc. gained 20 percent in today's session. Light at the end of the tunnel? Not yet, let's first see how this bad bank proposal works.

Cristina Fernandez, Argentina Head of State, to Address the LG Swap Issue in Presser Today, Sources Tell Us

The formal announcement of the results of the swap of Guaranteed Loans (known as Prestamos Garantizados in Spanish language) will be announced by President Cristina Fernandez Kirchner tonight(4:30 p.m. New York time.) Cristina, yet, doesn't have a good record of starting pressers on time.

Anyways, rumour has it that the amount swapped topped $3 billion worth of PGs that mature between 2009 and 2011 (the PGs eligible for this swap are pegged to the 2008 global bond and the 2006 Bonte among others.) About $9 billion of PGs mature by 2011.

Santelisa Vale Seeks Debt-For-Equity Swap

Santelisa Vale SA, the Brazilian sugar and ethanol maker that reportedly lost $300 million in derivatives bets gone awry, is rushing to exchange 2 billion reais of debts into equity. Gazeta Mercantil reported the move, without giving a clue who sourced them the information. There are more than 10 banks involved in the deal, in which the BNDES, obviously, is involved too. It doesn't take much to imagine the way the BNDES is helping out Santelisa Vale: pumping money into the company to consolidate a strategic player in the strategic ethanol strategic industry ...

Gazeta also reported that the investment-banking unit of BNDES, the so-called BNDESPar, is considering an additional investment in Santelisa Vale worth 500 million reais.

Volkswagen Leasing May Sell Short-Term Notes in Mexico

Volkswagen Leasing may offer up to 3 billion pesos in short-term notes in coming days. The notes are rated 'mxA-1+' in a local scale by Standard and Poor's. The offering forms part of a 10 billion peso debt issuance programme that includes the sale of shorter- and longer-dated bonds.

One More Blog About Brazil, Latin America, Financial Markets

Tony Volpon is an American economist who's lived in Brazil for years. He worked for BankBoston and a number of shops there and currently he is chief economist for the Brazilian unit of Spanish brokerage CM Capital Markets. I have just been informed of his blog, Alternativa Brasil. I really hope you'll like it a lot (I did!)

Here is the link to Tony's blog:
Enjoy it!

Market Memorandum Writer Has to Bring Food Home. Blog Will Be Semi-Abandoned for a Few Days

Dear reader:

I have to travel to Cartagena (yes!), bring food home, earn my living, do something productive, all that. We will be sporadically commenting the news that do move Latin markets, those which matter, bringing some insightful information to you while keeping this thing not that ''up to date´´ up until Feb. 3, -- by then I hope to be back soon. In the meantime, don't sweat, don't get stressed, don't jump off the window! We will be back shortly, I promise!

Thanks for your very support, comments and readership. Los comienzos son duros, mas hermosos.

Bogotá Suffers One Terrorist Attack. Two Colombians Died. Sad Day for Colombia.

Here is the Reuters story on the bomb blast that occurred in Bogotá last night. Two innocent people died. Initially, 20 were reported injured but fortunately no one ended up wounded.

I had a good friend having dinner at the Club Colombia restaurant next to the Blockbuster building were the bomb went off. She is fine, thank God. ''I felt the earth trembling,´´ she said to me on the phone minutes after the blast -- she sounded scared but fine. Diners rushed when they heard the blast. The Blockbuster facility was partially destroyed. I was nearby the site too, after having met with my her earlier ...

On the other side of the city, and about an hour after the blast, I met with a banker friend for drinks. We went to a bar called Invitro -- one of those places where the crisis ain't being and probably won't be felt. People were partying wildly, dancing, drinking heavily ... Yet, and you could see that from the windows of the bar, policemen and military were deployed along city streets. That image automatically reminded me of those years in the late 1980s and early 1990s when we Bogotanians used to go out our homes thinking that ''we were living in borrowed time´´ and that we may not make it back home later.

LatinFinance Says Lack of Financing is Putting Brazilian Homebuilders in a Bind. Time for Further Consolidation in the Sector?

A kind reader of this blog forwarded us a note by New York-based magazine LatinFinance published this morning. The magazine says in its daily brief that the ''lack of financing´´ is putting ''Brazil’s homebuilders in a bind,´´ citing a Fitch report that we summarised on Jan. 22 (click right here for the link to the posting.) The intersting part of the LF report is that ''private equity bankers say they are beginning to see investment opportunities in the sector.´´

Consolidation might be the natural path for many of these companies, said a U.S.-based anonymous source to LF, as ''debt payment and lack of financing will produce investment opportunities.´´ A São Paulo-based banker told the newsletter that ''he has had some conversations with companies in the sector,´´ some of which will undergo some restructuring or even might need to bring in a private equity partner.

While the situation of some companies like Brascan looks not too bad at the moment, others are facing serious cash problems. Company, Trisul, Cyrela (the market's leader,) Even and Gafisa were subject of credit ratings changes by Fitch in recent days. In the previous days, real estate companies have driven down the Bovespa on concern over their business model, expensive acquisition charges and a decline in the creditworthiness of mortgagors. The BNDES and Caixa Economica Federal (both state-owned lenders, of course) are ready to step in to help ailing homebuilders cope with the stressful markets. It seems that the Brazilian state is ready to become a war hospital ... at the expense of taxpayers.

Petrobras's Gabrielli Tells Bloomberg that Company Won't Borrow in Bond markets This Year. Got Scared with Pemex?

They got terrified. Petroleo Brasileiro, the oil giant, suspended plans to borrow in the bond markets because borrowing costs are ''too expensive,” Bloomberg cited Chief Executive Officer Jose Sergio Gabrielli as saying in an interview. The company, which has secured $17.5 billion in financing from Brazil’s BNDES and other lenders, has no need to tap bond investors for funding, for now ...

Well, if Petrobras has to invest more than $170 billion by 2014 to extract oil form the ocean sea bed, I would assume that they need more cash (that because the Brazilian state is such a big sucker of cash that ... yes, they would simply need it.) And they might need that money sooner rather than later -- to take advantage of a dramatic drop in exploration costs from the records we saw last year. For 2010, Petrobras needs $18.9 billion in financing, with about $10 billion having been guaranteed from the BNDES, Gabrielli told investors in NYC. But it is probably correct not going to the markets at this very moment, because Petrobras would have been badly hammered.

Remember that Pemex, the Mexican oil company, sold $2 billion of ten-year debt at 8.25 percent, or about 5.7 percentage points more than U.S. Treasury yields of equivalent maturity.

Pemex Placed Bonds in International Markets -- Will Petrobras Be Next? But at What Cost?

Pemex is one reason to talk about Petrobras. But before that, dear reader, here is Pemex's final terms spreadsheet:

Issuer: Petróleos Mexicanos

Guarantors: Pemex-Exploración y Producción / Pemex-Refinación / Pemex-Gas y Petroquímica Básica

Ratings:1 Baa1/BBB+/BBB (Stable/Stable/Stable)

Format: Rule 144A/Regulation S with Registration Rights

Joint Lead Managers and Joint Bookrunners: Calyon SA /Citigroup Inc. / HSBC Holdings Plc.

Co-Manager: Santander Investment Securities Inc.
Principal Amount: $2 Billion
Maturity: May 3, 2019
Coupon Rate: 8.00%
Interest Basis: Payable semi-annually in arrears

Interest Payment Dates: May 3 and November 3
Issue Price: 98.313%

Benchmark Treasury: UST 3.75% due November 15, 2018

Benchmark Treasury Spot and Yield: 110-13, 2.543%

Spread to Benchmark Treasury: +570.70 bps

Yield: 8.25%

Pricing Date: January 27, 2009

Will the next one be Petrobras? So long as they offer a competitive rate and also allow the market to price in the fact that it is an oil producer suffering from excessive political intervention.

A source in the capital markets told us that the company is feeling the pinch of
having been front-runned by Pemex yesterday. Some remarks made by CFO Almir Barbassa (to which this blog had no access to the posting time of this note) sort of confirmed that assertion. Petrobras's 2016 bond was uneasy in trading screens today, going up and going down, on speculation a potential deal might be on the making.

Some people are rumouring (you know how market rumours are, evil but true) that Petrobras secured $6 billion from a number of banks in the past few days. It sounds likely that Petrobras will try to sell more debt this year -- but I insist and I disagree with some of my sources, -- placing it will depend on pricing and the market reading of upcoming news over the political use of the company for job generation and all that Lula government crappie paraphernalia. Politicians from the ruling Workers' Party, who want to become masters of the universe, are far from understanding market functioning. Credit metrics will get worse and so will the market perception about Petrobras creditworthiness.

There Are Still Good People and Responsible Journalists Around the World

IncaKolaNews´s Otto Rock (photo, nice photo, isn't it?) is the one who spotted that outrageous thing in Facebook about Bolivian President Evo Morales. And a few reporters at the Associated Press went out looking for the story. Here is the result. There is still good people in this world of greed and indifference. Thanks to them ...

Facebook nixes group seeking Morales 'liquidation'
By FRANK BAJAK, The Associated Press

6:04 p.m. January 27, 2009

BOGOTA, Colombia — The social-networking site Facebook removed a group on Tuesday whose title advocated raising money so a gunman could be hired to "liquidate" Bolivia's leftist president, Evo Morales.

The Spanish-language group, created in August, had 8,069 members and had drawn the attention of at least one outraged blogger as of Tuesday, when The Associated Press alerted Facebook about it.

Called "Global collection to hire a sharpshooter to liquidate Evo Morales," the group's first description line stated, "We need to get the money to inspire someone to do it."

Its 20-year-old Bolivian creator, Hony Pierola, denied any malice. He told the AP he started the group "to laugh a little and wouldn't be so stupid as to do it with serious intentions."

However, many of the group's 497 postings were hateful, violating Facebook's terms of use, which ban threatening violence or expressing hatred.

One posting, dated Aug. 10, suggested Morales be "tortured and made to suffer, like he's doing indirectly to many Bolivian people." The vast majority of group members were well under 30, based on the birthdates and photos they posted.

The first Indian president of South America's poorest country, Morales has been a divisive figure as he drives a socialist agenda. On Sunday, Bolivia's voters approved a new constitution that seeks to empower the country's long-suppressed Indian majority.

Bolivian presidential spokesman Ivan Canelas said the government wasn't aware of the removed Facebook group but said officials would look into it.

A Facebook spokeswoman, Jaime Schopflin, said Pierola's group clearly violated the company's terms of use, and that the site was removed within 90 minutes of AP's call. She said she did not know whether anyone had previously alerted the 700-employee company to its existence.

Schopflin acknowledged the challenge of enforcing user terms amid skyrocketing growth; Facebook's users have more than doubled over the past year to 150 million, most outside the United States.

"We do have a multilingual staff. We are trying to scale right now," she said by telephone from the 5-year-old company's headquarters in Palo Alto, California. "These things, once they are reported, we remove them immediately."

The accounts of repeat violators are disabled, Schopflin added. Pierola's account remained active Tuesday.

In an e-mail exchange, Pierola was unapologetic and made clear his deep distaste for Morales, telling the AP that "in my honest opinion as a human I think it's not his fault he's such an imbecile."

"I hope he doesn't do stupid things and that Bolivia doesn't turn into a communist state," he said.

Obama Invites Lula to Talk in March. The Agenda: Lula's Stupid Opposition to the FTAA? Or His Stubborness to Sign the Doha Round?

Oh, dear reader, I wished I liked Brazilian President Lula's trade and foreign policy framework. Read this Valor Econômico link ... Lula will meet U.S. President Barack Obama in march -- what will they discuss? a revival of the FTAA? or the need to have annoying trade unions opposing any single measure to beef up cash reserves in corporations? or ... increasing environmental restrictions on industrial companies now that we are heading into a recession? Ha!

President Lula likes talking to the small fish because he feels the big one. When he talks to the bigger ones, he neither defends Brazil's interests nor flexibilises terms of trade with them. Anyways, that is my opinion.

IDEAGlobal Says Buy Short-Termed Colombian TES Debt. Translate it If You Can

I won't rewrite this -- I have had a long day! It reads quite clear to me .. but it might not read that clear for some of you. The only thing this blog will say is that there will be at least 250 basis points of monetary policy flexibilisation between the start of Jan. and mid-2009. The situation in Colombia (I just realised it tonight) is bad ... but people don't seem to quite get it.

Try a little harder with the reading ... IDEA kind of makes its point.

''Colombia's TES curve has paralleled most other domestic fixed-income markets in the region in enjoying an accelerated period of yield compression underpinned by the expectation of additional larger anti-recession rate cuts to come. In examining the shape of the TES curve, the described compression has also moved the spread between short and long-duration paper back to the edge of its prior "normal" trading range observed during the course of nearly 1 ½ years and that dates back to early 2007. Our particular chart (which we don't show here in MM) example isolates the spread of the 2010 TES and that of the 2020 TES. We're now holding differentials between these credits that were last observed in mid-2008. What's interesting about current levels is that the 2010 maturity trades with an approximate yield of 9.19 percent, which would be theoretically above the 9 percent levels we target as the official rate after the CB has its say on the matter this coming Friday. In-turn, the 2020 paper stands at 9.77 percent, which would imply a difference of near 75 basis points if the rate cut that we expect materializes. Our impression is that the front-end will need to start adjusting for additional stimulus to come, likely forcing this spread towards some bull steepening ahead. Hence, we would favor playing the 2010 maturity from the long side, while shorting the back end in expectation of shorter-duration paper leading market psychology towards more rate reductions ahead.´´