LatinWEEK – 4 October 2007 MAIN BRIEFING Correa sweeps constituent

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LatinWEEK – 4 October 2007 MAIN BRIEFING Correa sweeps constituent Powered By Docstoc
					LatinWEEK – 4 October 2007

MAIN BRIEFING Correa sweeps constituent assembly elections to consolidate power in Ecuador President Rafael Correa won the "mother of all battles" on 30 September when his political party, Acuerdo País, secured a comfortable majority in the 130-seat constituent assembly. Traditional opposition parties suffered a sharp reverse, managing less than 30 seats between them. Correa's next battle is already shaping up: dissolving congress for the duration of the assembly's eight months of deliberations. Congress had proposed holding fresh legislative elections after the approval of the new constitution by referendum. Correa agreed, and went one better by calling for early presidential elections as well, with the caveat that congress be replaced by a legislative commission in the interim…

ANDEAN REGION BOLIVIA: Morales establishes diplomatic ties with Iran Bolivia's President Evo Morales met his Iranian counterpart Mahmoud Ahmadinejad last week to establish diplomatic relations for the first time between the two countries. Increasingly a cause of concern for the US, Iran has been feted by countries such as Venezuela and Nicaragua as a strategic ally in the battle against US imperialism. At the same time, Morales' virulent attack on US President George W Bush before the UN General Assembly coincided with mounting problems on the domestic front, with the constituent assembly looking more and more likely to close... VENEZUELA: PSUV gets lift-off Nine months after President Hugo Chávez announced his intention to form a new political party to fuse competing factions within Chavismo the Partido Socialista Unido de Venezuela (PSUV) is taking shape. Some one million aspiring members from the 25,000 "socialist battalions" elected more than 11,000 spokespeople on 29 September. These will, in turn, elect delegates on 13 October to the founding congress, which will debate the party's political programme and statutes as well as choose the leadership... Tracking trends BOLIVIA | Gas rationing. The state-owned energy company Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) announced that domestic supply of gas would be rationed in 2008 as the country struggles to increase production to satisfy its contractual commitments to Brazil and Argentina. YPFB was compelled to cut the supply of gas to Cuiabá, in the Brazilian state of Mato Grosso, which should amount to 1.1m cubic metres a day (cmd), to keep up the flow of gas to São Paulo, 30m cmd. YPFB was also forced to renege on its contractual agreement with Argentina to supply 7.7m cmd: it is currently supplying just 1.5m cmd, less than the minimum stipulated in the contract. Domestic demand is 6.5m cmd but increasing rapidly. The president of YPFB, Guillermo Aruquipa, blamed low production and a lack of investment by past governments and foreign energy companies in essential infrastructure, such as pipeline-capacity, but he

insisted the situation would be resolved by 2009. It will need to be: YPFB is due to increase exports to Brazil and Argentina by 2010. VENEZUELA | Currency change. President Hugo Chávez announced the launch of Venezuela's monetary reform, during his weekly broadcast Aló Presidente, under which three zeros will be knocked off the bolívar to create the bolívar fuerte. It is now obligatory to advertise prices in both forms before the bolívar is phased out altogether by the end of the year. This, Chávez announced would allow the government to reduce inflation to one digit and "recover all the lost ground against the dollar, the euro and other global currencies". Inflation for the first nine months of the year was 10.9%, the central bank announced this week. The consumer price index for September was 1.3%. SOUTHERN CONE

ARGENTINA-URUGUAY: Kirchner flip-flops on pulp mill's location President Néstor Kirchner told reporters last week that his government had accepted the fact that a controversial pulp mill built by the Finnish company Botnia in Uruguay could not be relocated, as it had previously demanded. "The pulp mill is there. There is nothing else to do now but to wait for the ruling of the International Court of Justice"(ICJ), he declared. Kirchner's apparent acceptance of the pulp mill's location, on the banks of the shared Uruguay River, appeared to signal the end of the long dispute between the two neighbouring countries. Just a few days later, however, he back-tracked, following savage attacks from his political opponents, claiming he had been misunderstood… Tracking trends CHILE | Budget. The government announced an increase of 8.9% in next year's budget, to US$34bn. "We want a growing and competitive economy, but also a country that provides prosperity to all its citizens," President Michelle Bachelet said. In order to achieve this goal the government increased social spending above the budget's average increase, by 11.4%, to provide more resources for health, housing and education. The government will also set aside an extra US$940m to improve public security, the main concern of Chileans according to opinion polls. The increased budget will be funded by record revenues from the copper industry, forecast to expand by 6% this year. The finance minister, Andrés Velasco, also took the opportunity to deliver his forecast that "Chile will become a developed country by 2020". URUGUAY | Inflation falls. Uruguay's central bank president, Walter Cancela, celebrated the fall of inflation in September declaring that the government had "managed to break the backbone of the hike in consumer prices". September's 0.41% inflation rate was well below the 1.73% rate registered in August. Uruguayan authorities announced a series of measures to contain inflation, which the opposition claimed resembled policies pursued by the Argentine government, "leading to myriad problems and the total discredit of official data". MEXICO & NAFTA MEXICO: Mexican businessmen welcome EPR's offer Ismael Plascencia, the president of the Confederación de Cámaras Industriales (Concamin), responded eagerly to an offer by the Ejército Popular Revolucionario (EPR) to halt bomb attacks provided business put pressure on the government to find two missing Eprístas. On 2 October the EPR issued a statement in which it said that it would call off its bombing offensives if the government issued an amnesty for all political prisoners held in the country. The government denies that there are any political prisoners in the country, and reiterated that it had no knowledge of the whereabouts of Edmundo Reyes Amaya and Gabriel Alberto Cruz Sánchez, the two Eprístas the EPR claims that the government holds. The EPR said that it wanted businesses to

put pressure on the government to get Reyes Amaya and Cruz Sánchez released. "It's quite simple," the EPR communiqué ran, "…if this happens, there will be no more actions which damage your [business] interests”… Tracking trends MEXICO | Inflation. Agustín Carstens, the finance minister, denied on 2 October that inflation was out of control and threatening the economy. Economic policymakers have been shaken by a poor inflation figure for the first half of September: 0.6%, the highest for the period over the last six years. Inflation has been pumped up by a combination of factors: high food prices; poor weather; bomb attacks on pipelines -which required the importation of oil and gas at high prices to cover the deficit in domestic supplies. Carstens was testifying to congress. He said that he still expected wages to rise in real terms this year. He admitted that the international economic environment was "relatively adverse", but he pointed out that the economy was continuing to grow and to attract foreign investment. He did say, however, that the economy was unlikely to grow at the 3.7% rate for 2008 forecast in the budget. He said that the problems in the US would mean that growth would be lower… CARIBBEAN & CENTRAL AMERICA GUATEMALA: Police chief quits over new scandal The prevalence of organised crime within the Policía Nacional Civil (PNC) once again came to light in a new scandal which resulted in the arrests of two police officers and the resignation of police chief, Julio Hernández. The incident highlights the need for the recently established International Commission Against Impunity in Guatemala (Cicig), which is due to begin operations later this month…

NICARAGUA: FSLN-PLC pact revived Talks are underway over "profound" constitutional changes, between the ruling Frente Sandinista Liberación Nacional (FSLN) and representatives of ex president Arnoldo Alemán, unofficial leader of the opposition Partido Liberal Constitucionalista (PLC), exposing once again the fact that the FSLN-PLC pact is alive and kicking. These negotiations also come as the Alianza Liberal Nicaragüense-Partido Conservador (ALN-PC) is suffering serious internal problems… EL SALVADOR: FMLN backs popular journalist for president El Salvador's left-wing opposition Frente Farabundo Martí para la Liberación Nacional (FMLN) appears to have learnt a lesson from the heavy defeat suffered by veteran hardliner Schafik Handal at the hands of the youthful, media-savvy candidate of the right-wing Alianza Republicana Nacionalista (Arena), Tony Saca, in the presidential elections in 2004. Mauricio Funes, one of the country's most popular print, radio and television journalists, will run for the presidency on the FMLN ticket in 2009 even though he is not yet a party member… TRACKING TRENDS CUBA | Spain restores ties. Cuba and Spain signed an agreement re-establishing cooperation, in abeyance since 2003 when the European Union (EU) broke off ties in the wake of the Cuban government's crackdown on dissidents. The minister of foreign investment and economic cooperation, Marta Lomas, signed the deal with Spain's minister for international cooperation, Leire Pajín. Pajín did not put a figure on the financial assistance but said it would begin in 2008 and embrace small business, food security and the environment. Lomas said Cuba now had "to demonstrate to other European countries that we can work together based on respect and equality". It is doubtful whether Spain's gesture will be reciprocated by the EU as a whole, however, as there is strong hostility to opening political dialogue from some quarters, especially the Czech Republic.

QUOTES OF THE WEEK “There is an old power that is crumbling… It is impossible to satisfy people who thought they owned the country and now see power slipping through their hands. If they are nervous, the only thing I can suggest is that they take Valium.” Ecuador's President Rafael Correa. “I have told Chávez that if he doesn't like our proposal to distribute 10% of the oil wealth to the population because it is called Mi Negra he should call it Mi Roja instead, but just hand over the wealth to the people, who are the true and only owners.” Venezuela's opposition leader Manuel Rosales. “My candidacy is a sign of unprecedented openness in the leadership of the FMLN… The leadership responded to the grassroots.” El Salvador's Mauricio Funes, a well-known media figure chosen by the left-wing FMLN as its presidential candidate.

LATINFINANCE BRIEFING (By courtesy of Euromoney Institutional Investor)
Spain’s OHL Buys Into Brazil Roads OHL, the Spanish construction and services groups, was the big winner in Tuesday’s Brazil toll roads auction, snapping up five of the seven 25-year concessions on the block. The federal government auctioned off toll roads covering 2,600 km and the winning firms will need to invest a total of about BRL20bn. Spanish energy and infrastructure company Acciona and Brazil’s BRVias won one concession each. For the government, the sale was a success. More than 30 companies participated in the bidding, and in all cases the winners promised to charge tolls well below the government’s maximum. Brasilia is expected to issue another formal call for bids on toll roads December 20, with an auction early in 2008. Plenty of Upside Seen in Brazil Equities Brazil’s main large cap stocks still have plenty of room for higher valuations, in the view of William Landers, manager of asset manager BlackRock’s $732m LatAm fund. “We don’t think there’s a valuation bubble here,” said Landers, speaking Tuesday at a luncheon. Over 60% of the fund is dedicated to Brazil, where Landers sees the most growth opportunity versus the rest of the region. “Many large cap names are trading in line or at a discount to their EM peers,” notes Landers, pointing to CVRD which trades at 16.40x its earnings, a discount to BHP Billiton’s 17.12x, according to Reuters. Unlike their Brazil counterparts, Chilean stocks have the most to lose in the region, says Landers, who points to an average PE ratio of 20.4 for Chilean stocks, compared to 10.5 for Brazil and 15.2 in Mexico. Brazil’s Helbor Readies IPO Brazilian real estate company Helbor Empreendimentos plans to raise up to BRL443.7m in an IPO, it says in a regulatory filing. It will begin selling 21.1m shares October 25, at BRL16-BRL21. Investors can reserve shares October 17 through October 22. It will offer 3.17m additional shares if there is sufficient demand. Bradesco is leading the transaction, with UBS Pactual and Banco Safra in the group. Two Brazil IPOs Expected Today BicBanco and Construtora Tenda are slated to bring IPOs today, according to Dealogic. BicBanco has set a range of BRL11.00-BRL14.50 for its sale of 71.4m shares, which, at the

midpoint, means it could raise $485m. BicBanco would be only the latest of a string of mid-sized banks to come to market in Brazil this year, and investors are expected be particularly choosy with these and IPOs from real estate developers. BBI is leading. Construtora Tenda, a real estate developer, is eyeing a BRL9.00-BRL12.00 offering of 77m shares, which could leave it with $439m after the offering. Itaú BBA and Credit Suisse are the leads. Guidance Emerges on KUO Bond Mexico’s Grupo KUO, a maker of auto parts, plastics and canned foods formerly known as DESC, is expected to price Wednesday a $200m 2017 offering. Guidance is for a 10% coupon, following a US and European road show last week. Citi and Credit Suisse are joint bookrunners on the offering, rated BB- by Fitch and S&P. Peru’s BCP Sells $160m in Global Soles Banco de Crédito del Peru has priced a $160m 2022 NC10 sol-denominated subordinated bond issue at par to yield 7.17%, or 85bp over the sovereign. Morgan Stanley was the lead on the Baa3/BB+ issue. BancoEstado Taps Chile Bond Market BancoEstado, the Chilean state-owned bank, has issued $230m equivalent in 5 and 20-year bonds on the local market. The bonds, denominated in UF, pay 3.38% on the short end and 3.85% on the long end. Demand was three times supply and institutional investors were significant buyers, said the borrower. BancoEstado self-led the deal. Venezuela to Sell TICCs Venezuela's central bank plans to sell VEB505bn in 7.125% 2013 TICC bonds indexed to the dollar Wednesday, according to wire reports. Investors have to pay for them in local currency and receive Bolivars indexed to the official exchange rate at the maturity date. Conduit Sells Colombia Plant Private equity investment firm Conduit Capital Partners has sold an 82% stake in the 155 megawatt Termotasajero pulverized coal plant in Cúcuta, Colombia for $173m, it said in a statement. A Chilean investment fund and several Colombian pension funds bought the stake following a bidding process led by BNP Paribas. Scott Swensen, managing partner, declined to identify the buyers, but told LatinFinance that through the same process one other asset is subject to a binding SPA and other sales are being negotiated. He says four assets from Latin Power I and II remain to be sold. Latin Power I and II bought the Termotasajero stake in 1998 from the Colombian government. Food Producer Exits Mexican Sugar Operation Tate & Lyle has sold its 49% stake in Mexican cane sugar producer Grupo Industrial Azucarero de Occidente to ED&F Man for $93m. The food producer aims to trim its worldwide sugar interests to just Britain, Portugal and Vietnam, and will use proceeds to reduce Group debt. Occidente operates three mills in Mexico and is 51% owned by the Saenz family. LatAm M&A Hits Record in Q3 The third quarter, during which $34.5bn in M&A deals were announced, was the busiest quarter for LatAm on record since Q1 2000, when $34.8bn in deals were announced, according to Dealogic, which also treats privatizations and concessions as M&A. Year to date, LatAm takeover activity totals $76.2bn across 899 deals, compared to $72.3bn across 619 deals during the same period in 2006. Brazil is the most targeted nation in the region, with $35.2bn via 329 deals, followed by Mexico with $13.7bn via 130 deals. Coke, Femsa in for Juice Maker Coca-Cola and Mexican bottler Femsa have launched a $370m tender offer for juice maker Jugos

del Valle. The largest coke-bottler in Latin America has received approval from Mexican antitrust authorities to go ahead with the offer to purchase Jugos del Valle for $6.34 a share. The controlling owners of Jugos del Valle have already accepted the offer, which includes assuming $86m of debt. The two plan to invite other Coke bottlers in Mexico and Brazil to join the business once the new company, called Administracion, concludes its offer November 7. Suez to Build Chile LNG Terminal Suez Energy International and copper producer Codelco plan to build and co-own the GNL Mejillones LNG regasification terminal in the Antofagasta region of northern Chile. The $500m project should be operational by 2012, with an initial output of 5.5m cubic meters, enough to produce 1,100 megawatts of electricity. The terminal already signed contracts for the sale of natural gas with copper companies Codelco, BHP Billiton, Collahuasi and El Abra. The project aims at guaranteeing gas supply security in the north of Chile, which is still affected by restrictions from Argentina. Carlyle Purchases Mexican Retailer The Carlyle Group has bought Arabela, a door-to-door retailer of beauty products, from Procorp and Advent International, a private equity firm, for an undisclosed amount. Executives at the private equity firms and Arabela said in a release that the process marks a transition into a second stage of growth for the company, which was founded in 1991 by Procorp. There will apparently be no changes in senior management. Scotia Capital provided the acquisition financing. Liberty Mutual Snags Brazilian Insurer The US’s Liberty Mutual, through its Brazilian insurance arm, said Wednesday it acquired Indiana Seguros for an undisclosed amount. The company claims Liberty Mutual will gain over a million clients with a net written premium of $580m, becoming the tenth property and casualty insurer in the country and the sixth largest auto insurer. Earlier in 2007, Liberty Mutual invested in SIIF Energias do Brasil and Rosa dos Ventos, two large power wind plants. Debate Swirls Over FARAC Retail Syndication While a retail syndication for the $3.7bn equivalent FARAC loan is definitely in the cards, timing on the distribution is all but a sure thing, say bankers involved in the deal. One banker close to the process says arguments are being weighed by the bookrunners that both support and go against an immediate syndication. According to him, some banks are comfortable holding the $300m plus tickets until next year, and collecting some yield in the process, suggesting a retail launch may only come in 2008. Others believe the deal must get syndicated by the end of October, if not for the sake of reducing such a large peso holding, to meet the terms allegedly described in the commitment sheet that stipulate a retail syndication by October 31. Obtaining pesos to participate in such a mega transaction has been a significant challenge for offshore banks, and given the retail participation would include a number of non-Mexican entities, some participants are apparently happy to wait for a more calm funding environment in 2008. There are, however, billions of dollars worth of infrastructure deals in the pipeline for the coming several months that will compete for funds. The loan at issue is a 7-year, three-piece deal, stepping up from 165bp over Libor in year one to 185bp in years two and three, 200bp in years four and five, and 225bp in years six and seven. La Necaxa $1bn Financing Expected in 2008 The financing for the $1bn concession to operate and build out the Nuevo Necaxa – Tihuatlán toll road is expected to surface next year, according to bankers away from the deal. Mexican construction company ICA and Spain’s FCC were awarded the contract in June, but a series of complex shareholder and control issues are being sorted out, which are expected to take some months to resolve. Santander is backing the consortium, and is expected to write a check for the deal in pesos, with the ensuing funding also being done in local currency.

Cosan Launches Tender Offer Cosan has commenced a tender offer to purchase for cash all of its $200m outstanding 9% senior notes due 2009. It is also seeking to amend the notes to make the covenants consistent with those in its $400m 7% 2017 notes sold in January. Cosan is offering a premium of $10 per $1,000. Morgan Stanley is dealer manager. IFC Launches Chile Student Loans Program The IFC has partnered with DuocUC, a higher education institution in Chile, and Banco de Crédito e Inversiones, to establish Chile’s first private financing program targeting low-income students. The program is expected to originate loans totaling CLP27bn over several years. DuocUC will assume the first loss risk of the portfolio of student loans, while IFC and BCI will each cover up to CLP10.13bn of senior risk. BCI will assume the role of fund provider and administrator of the loan portfolio. The IFC is actively pursuing similar projects in other countries.

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