Corporate finance debate: Learn more about the participants
Euromoney: From your company’s viewpoint, was there any change in the availability or cost of corporate financing tools when comparing 2011 with 2010?
AdA: Yes, with the problems in the US and principally in Europe the cost associated with banking lines of credit from most of the international financial institutions has risen. In the case of European banks, and especially now at the end of the year, they have also been reducing the availability of these lines. At the same time, issuances in the international capital markets have risen in cost at a lower rate than the cost of banking finance and so have become a more competitive source of finance in this scenario. The local capital markets, meanwhile, continue to be an expensive option and the tenors of this debt are still relatively short term.
RA: The deterioration of global economic conditions made 2011 more difficult and costly for us to obtain financing such as bank loans and credit facilities for our operations, investments and for refinancing our future debts.
NS: Petrobras made an equity offering in September 2010, which represented a net inflow of funds of $26 billion. As a result, our access to the various markets - bank finance and other sources of funding in 2011 - was done on an opportunistic basis and so does not provide a good measure of comparison of availability or cost compared to 2010.
MdS: We didn’t see any change in availability for smaller-volume bank loans and we even saw some cost reductions. For larger volumes there were some nominal cost increases relative to immediate post-crisis levels. With regard to credit facilities, the credit quality of the borrower has become more and more crucial. There is less availability of credit for leveraged acquisitions at reasonable costs for higher amounts. We saw no significant change in availability and costs for local, unsecured debt issuance. The good news is availability of longer terms, up to five years, which are not necessarily indexed to inflation.
NS: Due to high interest rates prevailing in Brazil, Petrobras only accesses the local capital market for small deals, raising fund for real estate investments, through Certificados de Recibos Imobiliário (CRIs) where total costs are within acceptable levels. However, Petrobras has tapped the US dollar capital markets on a regular basis. In 2011, a multi-tranche jumbo deal in the amount of $6 billion was issued in January.
MdS: We found that when it comes to international bond transactions denominated in dollars, there is demand from investors at longer terms – between five and 10 years and even longer. And we think there are great pricing opportunities for the good Brazilian names.
Euromoney: In 2011 (compared to 2010) has your company changed its mix with regard to the use of these tools for corporate finance and, if so, why?
NS: No, we have not. The mix is basically the same – and broad: we’ve been accessing the US capital markets, the international bank market, bilateral and ECA financing, as well as working with BNDES on the financing of certain projects.
AdA: Yes, we have migrated part of our bank debt to the capital markets because the capital markets have allowed issuances of debt that have more competitive pricing and with longer tenor than bank debt. The other factor behind our migration to the capital markets is to diversify the sources of our financial resources while maintaining the credit limits that we have with financial institutions.
MdS: No, Ultrapar hasn’t made any changes to our financing mix.
RA: Cosan has been operating with a more conservative capital structure, both on a stand-alone and on a consolidated basis, following the consolidation into Raizen [Raizen is a 50:50 joint venture with Shell that creates the country’s largest ethanol producer and a key fuel distribution company]. On a consolidated basis, Cosan will benefit from Shell’s $1.6 billion cash contribution to Raizen and the unleveraged profile of the downstream activities.
Euromoney: Have your demands for credit changed?
NS: The company is deleveraged as a result of the equity deal that I’ve already mentioned and so there is room for debt raising to meet the company’s funding needs for the $224 billion investment plan for the next five years. This capex level was defined in 2010 and, although it is revised yearly, it has remained at the same level.
AdA: At Braskem, even with the current adverse financial situation we maintained our investment plan for 2011. Our main source of local financing is BNDES.
MdS: No, they have not changed significantly.
RA: Our long-term debt has generally been used to finance our major capital expenditure projects and has historically been sourced principally by financing programmes offered by BNDES and capital markets. Cosan’s ability to access long-term funding sources has not been, to-date, significantly affected by the effects of the global financial crisis, although it is possible that maturities and costs could increase for this reason in the future.
Euromoney: Have you worked with new banks this year?
RA: Yes, we have made good progress with new banks in terms of arranging bank loans and credit facilities.
NS: Given the size of our investment plan, which has been growing over the past years, Petrobras is always interested in expanding its base of investors and lenders. Brazilian banks have, since 2008, been part of our debt portfolio - prior to that year they were restricted from lending to the company. The same is also true of Chinese banks.
MdS: Yes, this year - motivated by pricing opportunities - we have begun to work with some of the Asian commercial banks.
AdA: Yes, we have inititiated new relationships with other players other than the American and European banks – these new relationships are principally with Japanese and Canadian banks.
Euromoney: Looking forward to 2012 – what changes in the availability/cost of these products do you expect? What products do you think will be more important to you in the future and why?
MdS: I believe that the nominal cost of funds may stabilize during the year, after some pressure in the first quarter. For top Brazilian names like Ultrapar, with a strong and reliable cash flow and a sound track record of good financial practices, there should be liquidity. For our company it will be most important for us to be able to access bank loans, both bilateral and syndicated loans, as well as international unsecured debt.
AdA: Facing a scenario of economic uncertainy that is being caused by the European debt crisis and the reductions in the expectations for global growth, the financial institutions will be much more cautious in making lines of credit available, reducing liquidity and leading to the cost of permanent lines of credit, in particular, remaining high. With regard to the the international capital markets, I think investors will demand higher new issuance premiums for new bond transactions.
NS: Petrobras is a price-sensitive company with respect to fund raising: we evaluate tenor versus cost of all the proposals we receive before deciding on a specific deal. In terms of products, we do not see too much of a change relative to the products currently purchased. Looking forward to 2012, we will be focusing on increasing ECA financing as a source of funds, due to the sizeable level of purchases of goods and services from foreign suppliers. As interest rates in Brazil decline, local bank markets and local capital markets may present themselves as attractive sources of additional financing as well.
RA: Part of our debt strategy over the next few years includes our intention to use a substantial portion of our consolidated cash flow, including the synergies resulting from Raizen. We are also attempting to improve our debt profile in order to reduce our cost of debt and extend the average maturity of our outstanding indebtedness, which will include repaying short-term debt through longer-term borrowings. We expect to have additional sources of funds which will become available for all strong Brazilian companies.
