LatinFinance - January/February 2015 - 2

JANUARY/
FEBRUARY
2015
FRONT NOTES

EDITOR-IN-CHIEF Katie Llanos-Small
FEATURES EDITOR Dominic O'Neill
SENIOR REPORTER Eduardo García
REPORTER Patrick Ferguson
CONTRIBUTORS Lucien Chauvin, Lucy Conger,
James Fredrick, Jennifer Roig
COPY EDITORS Sharon Kahn, Bill Shepherd
ART DIRECTOR Rosa Matamoros-Sense
COVER ILLUSTRATION Fredrik Broden
CARTOON ILLUSTRATION Christopher Weyant

Raising the stakes
By the time Joaquim Levy, Brazil's finance minister, detailed plans to straighten out the country's fiscal
deficit at his January inauguration speech, investors were desperate for some positive news from the
country.
Levy sought to mark a turning point after many capital markets investors had cut exposure to Brazil
amid volatility spurred by a contested electoral race. The year ended with Brazil's release of dire fiscal
results for November, revealing a deficit many times wider than had been forecast.
Levy has a tough job ahead. He was given a hesitant cheer by investors when Dilma Rousseff, reelected as president in November, named the market-friendly figure as finance minister. Now he must
prove his resolve to straighten out the government's finances, promote growth and win back investor
confidence.
Even if the government keeps up an aggressive fiscal stance, it could struggle to push unpopular tax
and spending measures through Congress.
Yet, financial difficulties at some of the country's largest corporations are pushing concerns about the
country's economic management to the background.
Brazilian construction company OAS, a regular issuer in the international bond markets, missed a
coupon payment due on January 2, putting it on the brink of default and sparking a string of ratings
downgrades.
More broadly, jitters over Petrobras' ability to keep funding its activities grew as the wait for audited
third quarter results dragged on. The oil and gas company postponed the figures in November in light
of investigations into corruption allegations, although it later said it was taking steps to continue its
investment program without new financing.
Bond market volatility, amid uncertainty over how far the investigation would extend, pushed two
Brazilian companies to pull deals in December.
Corporate woes and the unpredictable pace of macroeconomic adjustment are likely to mean a turbulent path for Brazilian companies wanting to raise capital in 2015. Many are likely to shun the equity
public markets as a result.
Tapping private equity firms and foreign strategic investors will be one solution. Some M&A bankers
say such investors see long term opportunities in Brazil, and are being enticed by a fall in valuations at
companies based there. Meanwhile, new regulations allow companies to privately place new shares
under an expanded framework previously
only used for debt sales. Clothing retailer
Restoque was the first to test the new rules
in December, but ultimately postponed
the deal - a move that will make other
issues think carefully about the option.
Meanwhile, as BTG Pactual's chairman
and chief executive André Esteves tells
LatinFinance in this edition's cover story,
the investment bank will continue using
its own capital to support client's deals.
That kind of unorthodox approach could
be one of the ways in which potential issuers may be able to raise capital while the
storm lasts. LF

2 L ATINFINA NCE.COM - January/February 2015

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LatinFinance - January/February 2015

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