Bears bring a spotlight to Brazil’s ‘Chapter 11’

With sellers and buyers in LatAm equity issuance and M&A finding it difficult to agree on valuations, banks are hard pressed to get deals away.

Guaranteed purchases make ‘deal’s floor the ceiling as well’; Valuation expectations of sellers and buyers persistently diverge

US demand for LatAm investment expected to hold up; also developing vehicles for Brazilians investing abroad.

Bears thrive on accelerating inflation, weak growth and a falling real. But a positive, reforming response to protests might transform sentiment in Brazil.

A wave of protests over a wide range of political and economic grievances has rocked Brazil, despite the fruits of its decade-long commodity-driven growth having been more evenly shared than other producers. The macroeconomic consequences could be more severe than markets expect, as it heaps on the risk of fiscal laxity and reduces prospects for structural reform, say analysts.

The Brazilian real looks set to escape the sell-off sweeping across emerging market (EM) currencies after the country’s government scrapped the tax on overseas investments in domestic bonds.

Firm seen as ‘catalyst for consolidation’; Fierce competition driving down fees

Local banks outgun global leads; Brasil Plural the latest ECM contender

After a poor 2012, the central bank forecast growth of 4% for 2013; it has already cut this to 3.1%. International investors are going elsewhere in the region. With domestic investment falling, Brazil will do well even to hit that target.

With Brazilian inflation now above the target rate, in mid-April the central bank announced a rise in interest rates for the first time since July 2011. But the move, in the face of stubborn and diffuse pressure (over 70% of the country’s inflation basket is now affected by inflation) was dovish – just a 25 basis point increase in the face of the market expectations of 50bp. The minutes from the central bank’s monetary policy committee meeting also showed that two of the eight members voted against any rise.

Assertion that private funding is vital challenged but private skills might be essential.

Economy recovering; high-quality companies in pipeline.

Collateral damage from capital controls; Brazil’s policies criticized by neighbours.

Brazil’s consumption-led economy is starting to run aground.

There has been a steady increase in international Latin American debt issuance recently. But is this masking a trend towards local-currency issuance, specifically in local markets?

As Brazil’s private banking market becomes more like the rest of the world, with greater product diversity and sophistication, the international banks sense an opportunity to take the competition to the locals. In recent years the Brazilians have used their presence and their nationality to win market share.

Bullish investors – such as Jim O’Neill, chairman of Goldman Sachs Asset Management – reckon strong earnings growth will ensure emerging stocks can repeat their stellar performance in 2013. But with valuations less attractive than last year, only the smart money will generate outsized returns, with China and Russia looking particularly attractive, analysts conclude.

The collapse in interest rates means that rich Brazilians will have to grapple with riskier investments offering less liquidity if they are to maintain investment returns. Private bankers are up for the challenge of providing them.

Linx looked to for issuance kickoff; Large deal pipeline needs stimulus

Despite the country’s strong fundamentals and celebrated growth rates in recent years, the economy lost some of its shine in 2012. The government must get over its obsession with the real and concentrate on beefing up productivity and trade, say analysts.

Capital controls look as likely as inflation targeting in upcoming monetary policy.

New farm land being opened up; Foreign investors making profit-sharing deals

The first tax-exempt domestic infrastructure bond has been issued in Brazil. Concessionária Rodovias do Tietê, a toll road operator, has issued R$650 million in 12-year debt.

Decoupling the country’s economy from inflation will take a long time and prevents long-term credit from developing.

Solid performers that buck the trend

Different ways to skin a cat

In July, debt restructuring committee chairman Bill Rhodes described the signing of agreement in principle on a Brazilian Brady plan as the end of the Latin American debt crisis – a month later US bank stocks dipped 1% in a day's trading on fears that the plan would collapse. Brazilian debt prices crashed as the political upheaval in the country deepened. But against the odds, the commercial banks have pushed ahead with the plan.