Latin Finance - May/June 2009 - 20

pitting investors and intermediaries against each other to squeeze out the last basis point are commendable. But this must be matched with a robust strategy for maximizing yield curve efficiency and managing the maturity schedule through the long run. As fallen angel Cemex illustrates, even a blue chip cash cow with seemingly sophisticated management can fail. The cement company took on an immense debt load to acquire Australia’s Rinker, which itself had just finished its own global spree. Unlike Vale’s 2006 purchase of Canada’s Inco, complacency over the speed of bridge takeouts set the stage for the demise of Cemex. In stark contrast, Braskem and Gerdau made transformational purchases that were backed by sound takeouts. They highlight the importance of financing works in both bull and bear markets. Braskem at the end of 2008 wrapped up a multifaceted two-year financing program following the purchase of competitors Ipiranga and Copesul. “The overall success of the financing began with the $1.2 billion acquisition bridge loan we took out [to acquire Ipiranga and Copesul,]” says Carlos Fadigas, CFO of Braskem. He adds that the facility at Libor plus 35 and 55 basis points in the first and second year, respectively, is among the cheapest M&A financing in the region. The company went on to launch a well timed $500 million bond in May 2008, followed by a $725 million five-year preexport facility funded in the height of market turmoil in the fourth quarter, without any major changes to price. Meanwhile, Gerdau CFO Osvaldo Schirmer describes how his company – which in the 12 months through August of 2008 raised some $5 billion in the bond, loan and equity markets – was able to shift gears quickly to adjust to global repricing. Infrastructure Bonanza A s governments around the world spend to bolster their economies against the ravages of the global crisis, and as LatAm in particular seeks to tackle a longstanding deficit, infrastructure is an increasingly attractive proposition. A new class of homegrown project finance specialist has emerged to scoop up the business, battling mainly European sponsors for large landmark mandates like Paquete del Pacifico (Farac), São Paulo Metro Line 4, and Petrobras drillship concessions among others. In Mexico, ICA and IDEAL have emerged as the dominant local shops, while in Brazil Odebrecht, a regional and increasingly global player, is joined by transportation specialist CCR. Aside from being excellent engineers, builders and operators, these domestic corporates must bring financing and structuring expertise to the table if they hope to win and operate concessions on lucrative terms. All four have pushed the financing envelope in their respective countries, and in the case of Odebrecht, across the region. IDEAL, Carlos Slim’s infrastructure shop, last year developed a novel toll road securitization structure that allows the concessionaire to put new collateral into a trust on a revolving basis. After issuing 7.1 billion pesos in AAA locally rated certificados bursatiles in June, the company is looking to tap again. “We have plans to issue but markets are changing constantly,” says Alejandro Aboumrad, CFO of IDEAL. “Thankfully we’re a very good financial position,” he adds, noting that in 2008 the company made a concerted push to term out all debt and make as much as possible fixed rate. That adds up to 15 billion pesos at tenors of about 20 years with rates roughly equivalent to 8.35%. In addition, he says, 90% of IDEAL’s debt is project financing, and nearly all of it is non- recourse to the holding company. All of that exposure is in fixed rate, either naturally or through hedges and swaps. The big strategic shift for IDEAL has been, since February, to exit non-core business like real estate and sell holdings in technology companies to refocus on developing infrastructure including tollroads, water treatment and hydro power. Front and center in the infrastructure push is the second Farac concession, called Paquete del Pacifico, for which a first auction in February failed to generate competitive bids. The original concession was expected to command an investment of 30 billion pesos. A second attempt by Banobras, Hacienda’s infrastructure development arm, was launched in April, and involved breaking up the package into two parts to make it more digestible for bidders. “This is a very important and strategic project for us and we’ve worked on this for more than a year,” says Aboumrad. The executive says breaking up the roads package made the proposition less compelling for his shop, given the reduction in synergies. He still plans to participate in both, however. Bids are due by the end of July. The first auction was accompanied by a near 100% debt financing program from the government, but failed because of a lack of certainty on the value of the brownfield portion of the concession, says Aboumrad. Banobras offered to write an up to 18 billion peso 25-year senior loan and a subordinated piece with a similar tenor worth as much as 30% of the project’s total debt in its first attempt at auctioning Farac II, and is expected to offer something similar in its second try. While most of the region’s developer debt is done as project finance, Odebrecht, which has tried nearly every funding avenue except public equity, is among the shops whose own bonds offer an interesting play for investors with appetite for sub-investment grade risk. The company’s finance arm reopened the corporate high yield market in earnest for Brazil in March with a $200 million 2014 bond priced to yield 10%, a significant feather in the company’s cap given market conditions. CNO, Odebrecht’s construction unit, also saw its $400 million in 7.5% of 2017 tipped in February by Deutsche Bank. It notes CNO’s $1 billion cash position versus $424 million in short term debt, as well as a long backlog of projects with committed financing, making the notes a compelling way to play the BB space. — Dan Shirai 20 LATINFINANCE May/June 2009

Latin Finance - May/June 2009

Table of Contents for the Digital Edition of Latin Finance - May/June 2009