Petrobras Pushes Envelope For HG Corporates 
Petrobras has raised $4bn through the sale of tightly priced 10 and 30-year bonds, the largest-ever bond issue from a Brazilian company and the longest post-crisis trade from a non-sovereign. Despite having issued $2.75bn in 2019s already this year, and secondary markets trading down recently, the issuer saw just shy of $8bn in demand for the 10-year and just over $4bn for the 30-year. The state-controlled oil producer priced $2.5bn in 2020s at 99.060 with a 5.750% coupon to yield 5.875%, or UST plus 238.5bp, and $1.5bn in 2040s at 98.452 with a 6.875% coupon to yield 7.000%, or UST plus 270.6bp. This was at the tight end of 6.000% area and 7.125% area guidance. The bonds traded up flat to up 0.25 points and 0.25-0.50 points, respectively, in the gray market Friday afternoon, according to a trader. “There is much more interest in the 10-year, because it seems to offer the best pickup to the sovereign,” says an EM investor looking at the deal, spotting it at about 85bp-90bp to the sovereign for the 2019 and about 115bp-120bp for the 2039, compared to Friday morning prices. Investors also note strong crossover demand from non-EM high-grade, as well as continued enthusiasm for Brazilin credit. “It makes sense that they would develop the longer end of the yield curve,” says Anne Milne, corporate debt strategist at Deutsche Bank, noting that Petrobras has nothing outstanding beyond 2019. “This opens the door for higher-quality sub- sovereigns – to the extent that they need money,” says a banker away from the deal. Proceeds will repay $3.2bn in 2-year loans signed earlier this year with Citi, HSBC, JPMorgan Santander, and Societe Generale, according to regulatory documents. Citi, HSBC, JPMorgan and Santander managed the sale, issued through the Pifco unit and rated Baa1/BBB/BBB. Co-managers are BB Securities and SocGen. The deal tops Vale’s $3.75bn bond in November 2006 to be the largest-ever corporate from Brazil, according to Dealogic. It is second in LatAm behind PDVSA’s $7.5bn deal from April 2007.

Retail Shuns Argentine Swap Sequel 
Retail holders of Argentine debt untendered in the 2005 exchange say they will not accept a reopening of the deal at the terms apparently on the table. “We all didn't wait 8 years for this offer from a consortium of funds/banks, who bought at 15 cents and want out at 35,” Mark Botsford, a US-based retail bondholder, tells LatinFinance. “They have $7m max, and the Kirchner's will still be out the big money,” he adds, referring to the participation he expects, of $20bn outstanding. “We’ll evaluate the terms of this offer once they are known,” says Nicola Stock, president of Task Force Argentina (TFA), which represents over 180,000 Italian holders with $4.5bn in principal and an estimated $4.5bn in PDI. He adds that if, as reported last week, terms are worse than the first swap, Italian retail – which demands 100% principal – is highly unlikely to participate. Economy minister Boudou is on tape saying terms of the new restructuring will be more favorable for the country than the 2005 deal. A haircut on principal in default of at least 65% is apparently the target, and there will be a new cash component, with Argentina seeking to raise about $0.10 for each $1.00 worth of defaulted bonds investors tender. Boudou told local reporters he aims to pay single-digits on the new issue. Stock adds that neither the debtor nor its advisors – Barclays, Deutsche and Citi – had contacted his association. “The strategy of Argentina is not to negotiate with representatives of the retail bondholders,” says Stock. The main carrot appears to be the fact that retail would not be asked to put in new money to participate. Stock adds that the group will continue to pursue its case in the World Bank’s ICSID court, and others are continuing with legal strategies. “We will wait for 2011, for a new administration [that is] more market friendly, meanwhile we continue through the courts,” says Botsford.

Argentina Restructuring Woes Set to Linger 
Argentina is keen to put debt problems behind it and get back to issuing bonds, but its latest plan to retire holdout debt is seen taking months and achieving only partial success. According to news reports, economy minister Boudou expects to close the transaction in 45 days. “We think that it will be very difficult to close the transaction so quickly; instead, we expect the bond swap to settle sometime in Q1 2010,” says Credit Suisse. According to the shop, if participation in the new deal is at least 60%, this would imply that 90% of bond debt defaulted in 2001 has been restructured, thus aiding the government with remaining lawsuits by holdouts. However, lack of retail participation could hobble the deal, and any remaining holdouts may potentially attach coupon payments on a new international issue. “The risk here is that under pressure by the most senior policy makers (the Kirchner couple and some key advisers), minister Boudou has to present another aggressive proposal; in which case the re-offer might not be the final solution to the problem of the defaulted debt,” says Goldman Sachs. “This would complicate not only the possibility of returning to international capital markets but might also have negative implications for restructuring the arrears to the Paris Club and to build a more constructive relationship with the IMF,” it adds. In Boudou’s announcement last week, there was reportedly no mention of PDI or GDP warrants. “Our expectation is that the government will issue a bond in the middle part of the curve to compensate bondholders for the interest accrued and for the past payments on the GDP warrants,” says Credit Suisse. The shop estimates the value of the USD untendered debt in the 40-50 range, with 45 a base-case valuation. “The value of the EUR-only exchange is 33-42 range,” Credit Suisse adds.

Femsa Beer Deal Expected Early November 
The sale of Mexico-based Femsa’s beer business to SABMiller could happen in early November, says a lawyer familiar with both sides, but not on the deal. A Mexico-based M&A banker – also not directly involved in the transaction – says the buyer is likely to pay 10x Ebitda in cash for the business. This is in line with the $9bn price tag that is being rumored for a 100% claim to the family run business. Although it is rumored that the family that controls Femsa is interested in keeping a stake in the unit, the legal source believes it is more likely that SABMiller will get the whole business. Femsa said October 1 that is was in talks with some companies regarding its beer business. Rothschild is advising.

Brazilian Paper Bond Sees Strong Demand 
Books on Fibra’s $1bn bond sale expected to price as soon as today were heard Friday at $3bn-$4bn, according to investors, as 9.5% area guidance was set. The issuer, formed from the merger of Brazilian pulp and paper heavy weights VCP and Aracruz, is expected to sell $1bn in 2019 NC5 bonds. “We like this deal at 9.5%. An oversubscribed book, upside potential, strong and supportive controlling shareholder group point to a hot deal. However, we are cautious given the high leverage and poor performance of recently issued deals,” says RBS in a research note. The shop likes Fibria’s growth potential and natural advantage over competitors in other regions, despite 7.2x net leverage that is not expected to fall in the next few years. Also set for this week in Latin DCM are a $350m 2019 from Mexico’s Mexichem, a $300m 2020 from Brazil’s Net, a $225m hybrid from Peru’s BCP and a $300m Tier-2 from Brazil’s Banco BMG.

Fibria Goes for New Loan 
Brazilian pulp and paper giant Fibria, which is expected to price a 10-year NC5 bond today in the 9.5% area today, is also holding a bank meeting today to launch a new $750m 5 and 7-year pre-export facility. Pricing is heard at 400bp for the 5-year and around 425bp for the 7-year, say bankers away from it. Deutsche Bank, BofA-Merrill and JPMorgan, which are leading the bonds, are bookrunners on the upcoming syndication. The trio is also understood to be among the derivative counterparties to Aracruz, the company acquired by VCP to form Fibria, involved in the FX contracts that blew a $2.1bn hole in the company’s balance sheet over a year ago. The funds will presumably go towards patching up this gap, and help the company meet its new obligations that resulted from converting a negative derivative position into term debt. “Even though leverage is high (7.2x on a net basis) and deleveraging isn't likely for a few more years, the company has offered a net leverage covenant at less than 5.5x until December 2010, less than 4.75x to December 2011 and less than 3.75x to December 2012,” notes Bevan Rosenbloom, RBS corporate debt analyst, referring to terms on the bonds.

IDB Approves Ringroad Financing 
The IDB has approved its contribution to an $895m A/B project loan that will finance the acquisition of a concession to build and operate a beltway road around the city of Sao Paulo. The IDB will extend A 15-year $150m A loan and lead a $350m 13-year B loan. A second $395m B-loan will be raised and disbursed following the beginning of commercial operations. Officials at CCR, one of the 2 sponsors on the deal, say local Brazilian banks and international banks have confirmed participation. IDB executives add they are waiting for final approval from a large lender to the project that may help reduce the sizes of the commercial tickets. The deal is expected to be finalized within a month.

Brazil Miner to Mandate Loan 
Brazilian mining specialist Samarco Mineracao is heard close to mandating banks to lead a $300m loan, say market participants. The company put out an RFP several weeks ago seeking a 5-year bullet, and is heard to have received several pitches. Bankers away from the process say 5-year bullet tenors are a challenge for most lenders. In 2006 Samarco raised an $800m 5 and 7 year loan starting at Libor plus 45bp and 65bp respectively, according to Dealogic. The facility was led by Citi, with ABN AMRO, BBVA, BNP, Bradesco, Santander, Lloyds, Natixis, SMBC and WestLB as arrangers.

Telmex Readies Local Bonds 
Telmex is targeting October 28 for the sale of MXP4bn-MXP6bn in domestic floating-rate bonds. The phone operator is planning 2014 and 2016 tranches. The exact size has not been indicated, but bankers managing the transaction say Telmex is looking for MXP4bn-MXP6bn. Inbursa and Banamex are managing the sale, rated AAA on a national scale. Proceeds will help refinance a 4.75% coupon $950m dollar bond due next year, and cover general corporate purposes. In July, Telmex sold MXP8bn in 2011 bonds at TIIE plus 74bp and 2013s at TIIE plus 95bp. Also, its Telmex International spinoff – which sold MXP5bn in the local markets in September – filed to increase its 5-year shelf to MXP20bn from MXP10bn.

Famsa Taps Euro CP 
Mexican retailer Grupo Famsa has raised a $44m euroclearable CP issue. The 1-year discount note pays an 8% yield at maturity. Proceeds are being used to help finance retail purchases of white goods by customers. The deal was placed largely with retail accounts, says a banker on it, including family offices and private banking. Famsa’s last visit to the market was a MXP1bn offering of 2012 cebures at TIIE+250bp via Ixe. Last week’s CP was led by US-based broker Atlas One, which acted as placement agent. Execution Finance, a Mexico-based shop, was Famsa’s financial advisor.

Ashmore’s Booth Bullish on Rogues 
The EM and LatAm debt rallies have a lot further to go, says Ashmore’s Jerome Booth, who says that high-beta Argentina and Venezuela credit looks especially attractive. “I would expect the [EM sovereign debt] spreads to go through where they were pre-Lehman,” Booth, who helps manage $31bn at Ashmore, tells LatinFinance. The perennial EM bull explains that relative risk is less now than it was pre-Lehman. Among EM sovereigns, high-beta credits have the farthest to go, and among the top in this category are Argentina, Venezuela and Ecuador. He says Argentina’s picture is improving – it has enough resources to continue debt payments for the next couple of years, and it appears a workable deal with holdouts is a real possibility in the near future. Booth also says Ashmore is constructive on Venezuela medium-term, with oil prices up and production set to increase as Chavez signs agreements with other state-oil companies. Ashmore is long Argentina sovereign debt and holds Venezuela, too, says the executive, declining to specify further. Booth says local currency debt is not as attractive – due to dollar spreads still being high – at the moment, but this inevitably will change, likely due to a weaker USD. About 80% of the alpha in local currency debt should come from strengthening currencies versus the dollar.

GEM Funds On Inflow High 
GEM equity funds saw inflows of $2.5bn in the week ending October 21, the highest since late 4Q 08, says EPFR Global. LatAm equity funds registered the second best week of the year to date, with inflows of $354m for the week. Brazil equity meanwhile drew new money from investors for the 15th straight trading day, ending with inflows of $387m for the week. As for performance, Lipper data shows negative numbers for the week, but still very positive year to date. LatAm equity funds dropped 1.15% for the week ended October 22, but they are up 105.47% ytd. Meanwhile, EM funds fell 0.97% for the week, but they have gained 72.21% ytd, while global small and mid-cap funds shed 0.64% for the week and gained 41.00% ytd.

EM Bond Funds Get Inflows 
EM bond funds received $492m in inflows on the third week of October, dropping from a record-setting high of the previous week, according to EPFR Global. Performance-wise, EM debt funds lost 0.49% in the week and have gained 32.13% year-to-date, Lipper says. Global income funds returned 0.20% in the week and are up 15.12% ytd, while international income funds are ahead 0.08% for the week and 12.79% ytd.

Ultrapar Gets I-Grade from S&P 
S&P has upgraded Ultrapar to BBB minus and its local ratings to brAAA thanks to a series of acquisitions and debt financings that bolstered its capital structure, says the agency. The previous rating was BB+. “The action reflects the greater diversification Ultrapar has achieved in the fuel distribution sector, recently boosted by the acquisition of Texaco in Brazil,” says S&P. Moody’s upgraded Ultrapar to Baa3 in 2008.

Moody’s Chops CIE on Liquidity Pressures 
Moody’s has chopped the ratings of Mexico’s Corporacion Interamericana de Entretenimiento (CIE) to Caa1 from B2 and kept it on review for possible further downgrade. The action reflects the company’s weak liquidity and a lack of a clear refinancing path, Moody’s says. Over 70% of CIE's debt (about MXP5bn) matures within the next 12 months, against estimated cash of less than MXP1bn, which Moody's assumes is mostly set aside for operations/working capital purposes. Moody's estimates that CIE's current cash balance, which was recently augmented by a MXP1.2bn capital increase, should be sufficient to cover near-term debt maturities assuming that bank credit lines are continuously renewed. However, the company will need to refinance its longer term maturities should the current debt restructuring not proceed as planned, says the agency.

Colombia Follows Rate Trend 
Colombia’s central bank has kept its monetary policy rate unchanged at 4.0%, as expected, and following the trend in most other LatAm countries. Also as anticipated by the market, the central bank said it would start buying dollars and TES bonds, in a bid to stem COP appreciation.