Wednesday, 4 February 2009

Just Now! Petrobras Sells $1.5 Billion of Bonds at 8.125 Percent

Well, these are the final results for the Petrobras bond sale. It went well, it seems.

Issuer: Petrobras International Finance Co.
Guarantor: Petroleo Brasileiro SA
Structure: Senior Unsecured
Ratings: Baa1 / BBB / BBB (STABLE / STABLE / STABLE)

Size: $1.5 Billion

Coupon: 7.875%
Maturity: 10 year

Yield: 8.125%
Use of Proceeds: General Corporate Purposes; Intercompany Loans; Capital Expenditures
Bookrunners: HSBC Holdings Plc. /JPMorgan & Co. / Banco Santander SA

Just Now!!!! Petrobras Price Guidance is 8.25 Percent Area

Important: A person familiar with the sale expects the Petrobras issue to price today late in the afternoon at a yield around 8.25 percent (with 12.5 basis points plus or down, depending on the result of the book-building.) Even as people who comment in this blog regularly said that Petrobras doesn't need the money, we insist that the company remains in need for fresh cash and was in urgency to tap international fixed-income markets for the first time in more than a year. Click on the Moody's report that we move today -- although the ratings company says that Petrobras will likely weather any possible cash problems, the required increase in Capex and debt is worrisome. Here are the details on the issuance:

Issuer: Petrobras International Finance Co.
Guarantor: Petroleo Brasileiro SA
Structure: Senior Unsecured
Ratings: Baa1 / BBB / BBB (STABLE / STABLE / STABLE)

Size: Dollar Benchmark

Maturity: 10 year

Price Guidance: To Be Announced
Use of Proceeds: General Corporate Purposes; Intercompany Loans; Capital Expenditures
Bookrunners: HSBC Holdings Plc. /JPMorgan & Co. / Banco Santander SA
Timing: ASAP

Local Bond Sales in Brazil Post Drop of 83 Percent in January. Tougher Terms, Shorter Maturities Dominate New Issuances

According to the CVM, Brazil's regulatory agency, sales of new fixed-income instruments, including local bonds and notes and structured investments, dropped 83 percent to 2.8 billion reais (over $1.2 billion) in January from a year ago. The driver of the decline was the offering of longer-termed senior notes, down 95 percent, as companies found it harder to raise cash by offering new debt. Investors are demanding these companies to offer more guarantees, cut maturities to less than three years from eight years less than 18 months ago, and pay higher yields; Bradespar sold 681 million reais of three-year debt at yields equivalent to 125 percent of CDI, which sounds crazy (12 months ago a company like Bradespar wouldn't pay more than 106 percent of CDI and borrow for at least five years.)

Offerings of debentures (the local word used for senior unsecured notes in the domestic capital markets) rose 44 percent in January. Companies funneled most of the proceeds from these transactions into debt-reduction and working capital. Sales of FIDCs, or shares in funds comprised of asset-backed securities, rose more than sixfold. This doesn't represent at all a recovering trend in this type of asset class.

Petrobras Issue ... Details

Issuer: Petrobras International Finance Company
Guarantor: Petroleo Brasileiro SA
Structure: Senior Unsecured
Ratings: Baa1 / BBB / BBB (STABLE / STABLE / STABLE)

Size: Dollar Benchmark

Maturity: 10 year

Price Guidance: To Be Announced
Use of Proceeds: General Corporate Purposes; Intercompany Loans; Capital Expenditures
Bookrunners: HSBC Holdings Plc. /JPMorgan & Co. / Banco Santander SA
Timing: ASAP

Earlybird, Feb. 4, 2008


Peor ciego el que no quiere ver ...

The headlines are:

BRAZIL -- Lula to Inject 130 Billion Reais into Accelerated Growth Programme (Click here for link to Estado story): Estado got this exclusive, which confirms that President Luiz Inacio Lula da Silva is trying to avoid the inevitable. One big problem is the lack of government ability to process all the planned projects and finish them before 2010. PAC data released in early November suggested that budget disbursement is losing momentum, primarily due to a lack of government efficiency and to the instigation of several lawsuits against some key PAC projects, specifically regarding land claims. Corruption probes regarding some airport contracts along with delays in approval of environmental licences for electricity plants have also contributed to the backlog. In October 2008, the government had pledged budget funds for only 57 percent of the $7.8 billion that Congress had authorised for PAC projects. Adbid, the agency that represents the infrastructure industry, estimates that 324 large projects face serious delays. Lula can pledge more taxpayers' money for the PAC but clearly the problem isn't money -- but efficiency.

COLOMBIA -- Freed Politician Accusses President Uribe of Negligence; Peace Commissioner Steps Down (Click here for link to Espectador story): Alan Jara, the former province governor who remained abducted by FARC guerrillas for more than seven years, said President Alvaro Uribe is little interested in peace. He slammed the man who most Colombians credit with reducing violence and handing the guerrillas a wave of military defeats. On the other hand, Luis Carlos Restrepo tendered his resignation as peace commissioner after proposing to ban the media from hostage release ceremonies. At this point, Uribe's peace policies seem to raise more questions than answers.

U.S. -- Ticketmaster, Live Nation Seek Merger to Face Challenging Times in Music industry (Click here for WSJ story link): In industries like entertainment, consolidation will be key as consumer spending falls.

U.S. -- Obama Plans to Cut Executive Compensation in New Plan (Click here for link to New York Times story): The Barack Obama administration will impose a cap of $500,000 on the compensation of executives at companies that receive large new infusions of federal bailout money. Political pressure is growing on this issue.

VENEZUELA -- Chavez Denies Rise in Urban Violence in Venezuela (Click here for link to Nacional story): This is the no-comment of the day (see photo.)

Is Petrobras Capable of Managing Extra Leverage in Coming Years? Moody's Thinks So


Gabrielli: For now, his debt strategy
isn't drawing much criticism ... for now ...


Moody's Investors Service said Petrobras's Baa1 ratings won't be modified nor revised following the company's increase in its five-year spending plan and its substantial projected debt financing needs in the next two years. Petrobras recently announced a revised long-term capital plan for 2009-2013 totaling $174.4 billion, a 55 percent increase over the prior plan.

The company is projecting that funding needs may reach more than $18 billion per year in each of 2009 and 2010, including debt amortizations and new debt incurred.
''We believe that a large portion of the debt increase can be accommodated within the company's current budget,´´ said Moody's. Part of that debt increase will be obtained with support via long-term BNDES financing. The problem is ramping up capital and upstream/downstream projects spending in a highly uncertain oil and gas pricing environment: capital spending is budgeted at approximately $28 billion in 2009 and higher in 2010.

''The cash flow deficits and implied financing needs will be large and well in excess of our earlier estimates of $8-$10 billion in incremental debt financing for Petrobras in 2009,´´
says Moody's. According to the ratings company, the additional debt could push Petrobras's proforma total debt to capitalization ratio to over 40 percent by year-end 2010 from about 20 percent now.

''The potential leverage increase is substantial and Petrobras faces sizable challenges both in arranging financing and relating to geology, technology, access to materials, rigs and services, staging of development, and the political environment,´´ the report said. However, ''the company has the flexibility to adjust capital spending and other means to manage leverage in response to changing industry conditions.´´

Kazakh Banks Face S&P Downgrade as Problems in Financial System Worsen

The nationalisation of banks is becoming more problematic than originally expected. While in some countries the problem is moral hazard (saving weak lenders, rewarding bad management and paying them bonuses,) in others is the real risk of a systemic failure. While many say ''let them fail and save the real economy´´ (I include myself in that group,) for some other countries the policy connundrum is quite difficult.

Standard and Poor's may cut the long-term counterparty credit ratings on Kazakhstan-based BTA Bank, its two subsidiaries Temirbank and BTA Ipoteka Mortgage Co., and on Alliance Bank. These rating actions follow the Kazakh government's decision to buy 78 percent stake in BTA through an injection of $2.1 billion and a 76% stake in Alliance by buying shares from existing shareholders.

''We believe that, given the status of BTA and Alliance as systemically important banks, further support would be forthcoming if needed to further stabilize their financial condition,´´ according to S&P. "We remain concerned about the continuing downward pressure on the banks' stand-alone creditworthiness from asset quality deterioration, which is depleting their capitalization, as well as continuous funding and liquidity challenges,´´ said credit analyst Annette Ess in the report. The Kazakh government expects its ownership of the banks to be temporary, but at this stage, the strategy and timing of the government's exit, which might be protracted, is unclear.

Barclays Expects Aggressive Monetary Policy Front-Loading Across Latin America

Barclays Capital economists say that Latin America ''is in many ways treading through uncharted territory.´´ Policymakers are taking chances, ignoring the pass-through impact of recent declines in their countries' currencies against the dollar, and cutting rates or increasing liquidity rapidly to stave off the effects of the global recession. ''For these reasons, which add to the unusual high headline inflation of 2008, policy responses have been slower to materialize,´´ the bank said in a report released Friday. ''As data continue to come out in coming weeks, we expect policies to become bolder and further front load rate cuts.´´

There are at least three key factors behind this policy response, Barclays says.
First, the currency depreciations in Latin America have been smaller than that in the U.S. dollar for the past years. Second, plunging commodity prices are contributing to keeping local prices tamed. And third, the economic deceleration is reducing pricing power by firms and retailers. The data for industrial production in Brazil, which was released yesterday and showed a drop of almost 15 percent on the year-on-year reading, represents a ''good example of the magnitudes involved.´´

The implication is straightforward: monetary policy should lean against the wind in this juncture. Therefore, aggressive easing should continue in the region, according to the shop.