Mexican Miner Takes IPO to London

Penoles, the Mexican mining giant, plans to carve out its precious metals unit, to be called Fresnillo, and list it on the London Stock Exchange. The total offering, slated for May, is estimated at roughly $2bn and will include $900m worth of primary shares, say executives close to the process. JPMorgan Cazenove is the lead on what the issuer says will create the world’s largest primary silver producer. The decision to list in London is an unfortunate one for LatAm exchanges like the Mexican Bolsa, or the Bovespa-BM&F, which would have benefited from such a high profile and sizable deal. The latter has made no secret of plans to consolidate LatAm liquidity on a single platform. “The decision to list in London was made a while ago, and based on the fact that other big mining names such as BHP Billiton, Rio Tinto and Anglo American are listed there,” says a banker familiar with the deal. Peru’s Hochschild Mining listed itself on the LSE in 2006, also via JPMorgan. The deal is timed to coincide with record highs for gold and silver, the company’s main metals. “They’re carving it out to realize untapped value in the company,” says a banker close to process. He notes that within Penoles, the operation has a lower multiple than it would on a standalone basis. Citi, Canacord Adams and UBS will be co-managers on the equity deal. Peñoles intends to retain at least 75% of the ordinary shares of Fresnillo plc on completion of the offer.

LatAm Equity Funds Make Decent Return

LatAm equity funds returned 1.28% in the week ended April 10, according to Lipper. China region funds sank 0.46%, while EM funds rose 1.26%. The biggest gains were made by gold oriented funds with 2.08%, while Japanese funds dropped the most, with a loss of 3.11%. LatAm outperformed the world equity funds group, which overall sank 0.30%. They are up 3.11% year-to-date.

UK Manager Readies New LatAm Funds

BlueCrest Capital Management, a London-based asset manager with $14bn under management – $2bn of which is in EM – is preparing to raise two new funds to take advantage of the opportunities it sees in EM. "Its a combination of market technicals, driven by balance sheet repair in the global financial system, as well as solid fundamentals in EM," Robert Enserro, portfolio manager at BlueCrest, tells LatinFinance, explaining the timing for the two new funds. Bluecrest which invests in multiple asset classes, is raising $150m for a 5-year targeted opportunity in LatAm fund and $250m for a 3-year opportunities investment pool focused on LatAm and EEMEA. They will invest in private debt and equity. BlueCrest has invested in a number of pre-IPO companies in LatAm.

IIF Sees Moderate Growth Deceleration

New data from the Institute of International Finance (IIF) predicts a moderate slowdown in growth across the board in LatAm through 2009. Regional expansion is forecast to ease to 4.4% in 4.1%, respectively, in 2008 and 2009, from 5.3% last year. This includes a decline this year to 2.7% in Mexico (versus 3.2% in 2007) and 4.6% Brazilian growth, from 5.4% last year. However, the IIF foresees a pickup in Mexico to 3.5% next year. Peru is set to fall from 8.5% in 2007 to 6.5% and 6.0% in the next few years, while the corresponding figures for Argentina are 8.7%, 6.8% and 4.2%, and for Colombia 7.1%, 5.1% and 4.5%. Inflation is meanwhile set to hit 6.4% this year, up from 6.0% in 2007 and 4.8% in 2006, says the IIF. It expects monetary policy to hold or tighten in coming months in Brazil, Chile, Colombia and Peru. Mexico meanwhile looks set to ease in the second half. “Most of the countries have shown solid growth in their economic activities and most of it comes from the domestic demand. Investors are optimistic,” says Carola Sandy, analyst at Credit Suisse.

Equity Markets Face Challenging Months

LatAm equity has outperformed other EM in the past month and quarter, but the next two quarters may be more challenging. “The short term outlook is more uncertain for LatAm equities,” says Geoff Dennis, head of equity strategy at Citi, referring to a 3-4 month timeframe. “If the global market continues to be weak, LatAm stands a chance of underperforming because it’s done so well until now,” adds the strategist. Bearish and volatile trading would keep the roughly 20 equity issuer hopefuls – mostly from Brazil – stuck in the pipeline. In the longer run, however, Citi maintains a bullish call on the region. It is constructive on EM and global equities if the US economy manages to turn around in the second half. The outlook for a continued up trend in commodities is still very positive, says Dennis. He notes that despite strong improvements in the region’s fundamentals, LatAm strength is largely supported by firm commodities, with oil, iron ore, copper, gold and pulp among the chief benefactors. LatAm stocks outperformed global EM in March for a seventh consecutive month, according to Citi, which points out the last time that happened was 1997. Brazil’s main equity index, the Bovespa, underperformed LatAm in March, falling 7.8% on the heels of an 11.9% surge in February. Peru dropped 5.1%, while Chile was the region’s strongest riser, gaining 7.7%, says Citi. Argentina and Mexico also had a positive March, rising 5.8% and 5.7% respectively.

DLJ Raises $300m for South America PE

DLJ South American Partners has started allocating from a new $300m private equity fund. The firm’s main principals, Buenos Aires-based Carlos Garcia and Marcelo Medeiros in Sao Paulo, are heading the effort and have already spent $82m across three deals. “Capital markets liquidity has dried up recently in Latin America and we believe that enhances our opportunities to identify investments going forward,” Garcia tells LatinFinance. The firm will employ various strategies, including buyout and growth capital, across all sectors. It will look to take controlling stakes in companies in order to gain greater influence over management and the exit strategy, says Garcia. The executive declines to specify by when he expects the $300m to be spent, though he speculates that given the number of opportunities, it may be a lot sooner than the fund’s mandated 5-year horizon. DLJ has invested in LatAm for several years from its global fund, but this is its first dedicated vehicle. DLJ South America Partners is a joint venture between Credit Suisse and the management team that was set up in late 2006 to target deals in South America. Since then, the entity’s three deals have been: Arcos Dorados, the LatAm McDonald’s business; Fispal, a food and beverage trade show promoter, of which it acquired 100%; and EBEC, an educational company in Brazil. DLJ joins a number of other PE shops raising new funds for the region, including Advent International and the Carlyle Group.

UMS Brings $1.25 in Exchange Warrants

Mexico plans to sell warrants with a notional value of $1.25bn that will allow investors to exchange foreign currency debt for peso debt. On April 2 and 3, investors will be able to purchase two types of warrant that allows them to trade in 21 series of dollar, euro, deutschemark and Italian lira-denominated bonds with maturities between 2009 and 2034 for local bonds. The first warrant has a notional value of about $1bn and offers peso-denominated bonds due 2014, 2017 and 2036. The second is worth roughly $250m and offers 2017 and 2035 debt denominated in UDIs. Holders of the warrants will be able to receive their new bonds on October 9. This is the first Mexican warrant transaction to allow swapping into UDIs, as well as the first time the liquid global 2034s will be involved, according to a banker on the deal. This is the fourth sale of warrants since 2005. The government has exchanged more than $4bn in foreign-currency debt for peso bonds in the last two years. Barclays and Merrill Lynch are managing the transaction.

Peru to Prepay IDB, World Bank Debt

Peru plans to prepay about $1.1bn of its debt to the World Bank and IDB by mid-year, according to local news and wire reports citing finance ministry official Jose Miguel Ugarte. It will use treasury funds to finance the repurchase of $620m in debt from the World Bank and $497m from the IDB, and is also considering the sale of new PES-denominated debt. Peru repurchased $838m in outstanding Brady bonds March 7. The planned buyback will be Peru's biggest since a $1.8bn repurchase of Paris Club debt in July.

Cresud Raises $288m in Rights Offering

Cresud, the Argentine holding company for IRSA and a number of agricultural assets in Brazil and the Southern Cone, completed a rights offering with existing investors Tuesday that grossed it $288m through the sale of 180m shares. The deal saw strong demand from existing shareholders, which meant new investors could not participate in the offering, Alejandro Elsztain, CEO, tells LatinFinance. Of the total shares offered, 60% were distributed in the form of ADS at $16, while the remainder was sold in the form of locally listed stock, at ARP5.04. Both the ADS, which represents 10 local shares, and each local share also carry a warrant that permits holders to buy an additional share at a 5% premium. “People are very interested in our track record with commodities. There are a lot of funds talking about investing in agriculture and commodities now, but we have the experience to show for it,” says Elsztain. The CEO says the proceeds are being used push into new markets, including Bolivia, Paraguay and Urugay. Cresud, which owns a 24% stake in Cactus Argentina, a feedlot whose co-investors include Tyson Foods, says Elsztain. That business is also set to grow and might draw some of proceeds he says. Citi, Deutsche and Raymond James led the offering.

LatAm, Brazil Equities Among Favorites: ML

LatAm is the preferred emerging market of choice for global equity investors in the next 12 months, according the most recent Merrill Lynch investor survey. And Brazil, along with Russia, is the top rated BRIC country, says the report, which polled 193 managers representing $676bn in AUM between March 7 and March 13. While managers were very underweight in LatAm in January, their average position changed over February and in March the region enjoys the only overweight position. Meanwhile they are neutral in EMEA and underweight in Asia. Within the BRICs, Brazil’s overweight rating has increased since January, while Russia’s has decreased from a dominant position. India and China have seen underweight positions all year so far. Brazil and Russia also enjoy the highest country allocations within all EM, followed by Thailand, Indonesia and Malaysia.

Merrill Launches Local Debt Indices

Merrill Lynch is launching new local EM sovereign debt indices to track the performance of EM sovereigns debt denominated in the issuer’s local currency. “The fact that we are launching this is a reflection of the growing importance of the local debt markets to institutional investors outside of the issuer’s domestic markets,” Phil Galdi, head of Merrill’s global bond index group in New York, tells LatinFinance. “These markets have grown in size and now represent an important asset class that has offered strong historical returns with low correlation to other asset classes,” he adds. The series includes three new indices: The Merrill local debt markets plus index is a broad composite index designed to track local currency sovereign debt at A1 or lower on average; the Merrill net cap-weighted liquid local debt markets index represents a liquid basket of fixed rate bonds with country allocations based on relative capitalization weights in corresponding broad country indices. The Merrill net equal-weighted liquid local debt markets index meanwhile represents a liquid basket of fixed rate bonds with equally weighted country exposure. They are aimed at institutional investors.

Repsol YPF Argentina Offering Shares

Oil company Repsol YPF is to sell 874,586 class ‘D’ shares belonging to a workers group this week, according to a filing with CNV, Argentina’s securities commission. The shares will be offered via Dutch auction on the Buenos Aires Stock Exchange and will be sold via MBA Sociedad de Bolsa. The share price will be set at not less than 90% of the average share price during the last six months, nor below 90% of the share’s closing price on February 6.

Pampa Holding Raises $180 Million

Argentine energy holding company Pampa Holdings, part of Dolphin Group, priced its share offering at 2.23 pesos per share ($0.714) and its GDS at $18, the company said on Friday. The company is selling 600 million of new shares via the Buenos Aires Stock Exchange. The subscription period for the new shares will close on February 9. UBS Securities and Raymond James & Associates are arranging the transactions. In October last year Pampa issued 300 million shares worth $112 million via the Stock Exchange as part of a structural reorganization and move to increase its share capital.

TGS Sends Out Feelers For Refinance

Transportadora de Gas del Sur (TGS), the Argentine gas transmission company, is evaluating proposals from up to six investment banks for a dollar-denominated offering expected to come to market by the end of Q1. In December, TGS filed a $650 million bond program locally. Bankers say given current favorable conditions, TGS could sell the entire amount in one go, but much will depend on pricing. Proceeds will go towards taking out bonds that have restrictive covenants.

Argentina Breaks 8%

Argentina took advantage of market conditions to place the third tranche of its dollar-denominated Bonar VII bond issue, Thursday, achieving a yield of 7.71% - at the low end of market expectations. The sovereign sold $500 million of the seven-year paper, which matures December 2013. The Republic last issued the securities in November when it achieved a yield of 8.03%. The government has $500 million left of the $2 billion program. Argentina’s external financing needs in the first quarter of this year total $3.76 billion.

Argentina Takes Bids For Bonar VII

Argentina will auction the third tranche of its dollar-denominated Bonar VII bond issue today, Thursday, according to the economy ministry. The sovereign is offering $500 million of the seven-year paper, which matures December 2013. The Republic last issued the securities, which carry a coupon of 7%, in November when it achieved a yield of 8.03%. This time around, Argentina will be looking for a yield of around 7.8%, say analysts. The government has so far issued $1 billion of a total $2 billion approved. Argentina’s external financing needs in the first quarter of this year total $3.76 billion. On Wednesday, Argentina’s country risk hit another record low, dropping to 190 basis points, as measured by JPMorgan’s EMBI+ index.

Banco Macro Returns For More

Argentina’s Banco Macro priced Tuesday a $150 million 10-year at par to yield 8.5%. The price was tightened from 8.625% area and the deal was heard trading up marginally on the break. Sole bookrunner was Credit Suisse and orders were heard in excess of $400 million. The deal was rated B2/B+ and highlighted the continued thirst for yield from investors. Proceeds are for general funding. Macro was last in the market in December with a $150 million 30NC5 at 9.75%. Macro started its capital markets comeback in March 2006 with an impressive $300 million IPO.

Argentina: Record Exports In 2006

Argentina achieved record exports of $46.6 billion last year, according to figures released by the economy ministry. The 15% annual increase in sales led to an increase in the trade surplus to $12.4 billion, despite the 19% rise in imports to $34.2 billion. GDP growth of around 9% helped drive up the demand for capital goods imports, said the ministry.

S&P Lowers Ecuador Rating To CCC

Ratings agency Standard & Poor’s has lowered Ecuador’s long-term sovereign credit rating to CCC from CCC+ and revised its outlook on the rating to negative from stable. The short-term sovereign credit rating remains C. S&P said its rating action reflected “repeated policy signals by the new administration that indicate significant downside risk to timely debt service on its US$3.86 billion of outstanding global bonds”. Ecuador is due to pay a $135 million coupon on its global 2030s on February 15 (with a 30-day grace period). S&P added that the rating could be downgraded further should the coupon payment be missed and should the government suggest the coupon will not be paid “during the grace period or if an exchange offer is put to investors”.

Argentina Economy Expands 8.5%

Argentina’s economy grew by 8.5% between January and November last year, according to the government. Year on year, the economy expanded by 8.6% in November, driven by construction and industrial production and rose 0.6% on a monthly basis.