LATAM WRAP-Venezuela rallies as Brazil continues to underperform

Paul Kilby – Forbes, 9/3/2015

Brazil remained the underperformer on Thursday in an otherwise buoyant day for Latin American bond markets as oil prices recovered and investors focused on specific credit stories.

Brazilian credits remained under pressure amid speculation that Finance Minister Joaquim Levy may eventually step down following the country’s first-ever budget to forecast a primary deficit.

Petrobras 2024s were being quoted 10bp wider, albeit at a wide bid-offer spread of 620bp-635bp.

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Telefonica aims to weather Brazil recession with broadband

Rodrigo Orihuela – Bloomberg Business, 8/31/2015

Telefonica SA’s growth in Brazil will probably be strong enough for the telecommunications provider to withstand the country’s longest recession since the 1930s, according to Chief Operating Officer Jose Maria Alvarez-Pallete.

Telefonica is increasing its share in Brazil’s broadband market as it integrates GVT, the Internet operator acquired from Vivendi SA. The carrier has also manged to stabilize its fixed-lines operation in Sao Paulo, Pallete said.

“The economy won’t help, but the company is improving,” Pallete told reporters late Sunday in Santander, Spain. “We won’t change our plans. The current momentum will continue. We are optimistic toward the medium term.”

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Exclusive: U.S. graft probes may cost Petrobras record $1.6 billion or more

Jeb Blount & Mica Rosenberg – Reuters, 8/18/2015

Brazil’s Petrobras may need to pay record penalties of $1.6 billion or more to settle U.S. criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company’s legal advisors told Reuters.

State-run Petroleo Brasileiro SA, as the company is formally known, expects to face the largest penalties ever levied by U.S. authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company’s thinking. The settlement process could take two to three years, this person said.

To date, the largest settlement of corporate corruption charges with the U.S. Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens AG, the German industrial giant. It agreed to pay the United States $800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities.

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Brazil’s stocks lead world losses as real approaches 12-year low

Andressa Lelli, Filipe Pacheco, Paula Sambo – Bloomberg Business – 8/13/2015

Brazilian banks sent the Ibovespa to the biggest slide in the world after Banco do Brasil SA joined Itau Unibanco Holding SA in allocating more money for soured loans. The real approached the lowest level in 12 years.

Financial shares in the MSCI Brazil Index sank to a six-year low on speculation other lenders will be forced to bolster so-called provisions. The stock benchmark dropped for a third day, while the real extended this year’s plunge to 24 percent. Swap rates, a gauge of expectations for borrowing costs, rose.

Lenders have suffered from a slowdown in consumer purchases as financing gets more expensive with interest rates at a nine-year high. The selloff in banks has intensified since May on concern that President Dilma Rousseff’s decision to boost taxes on the industry’s profits will erode earnings.

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Brazil’s Real, Ibovespa decline as exporters retreat on China

Paula Sambo, Andressa Lelli and Filipe Pacheco – Bloomberg, 8/11/2015 

Brazil’s real and the Ibovespa slid as China’s yuan devaluation fueled concern that demand from the nation’s top trading partner will falter. Stocks and the currency pared losses after Moody’s Investors Service signaled a cut to junk isn’t likely any time soon.

The real dropped 1.1 percent on speculation that trade inflows from the Asian nation will slump and as Goldman Sachs Group Inc. said it may weaken to 4 per dollar in the next 12 months. Vale SA, which gets a third of its revenue from China, extended this year’s plunge to 24 percent. Commodity companies in the MSCI Brazil fell 3.4 percent, the most among 10 industries.

Brazilian assets joined a global selloff that pushed a gauge of emerging-market equities into a bear market, following a 20 percent tumble from a September peak. China devalued the yuan as policy makers at Asia’s largest economy stepped up efforts to combat the deepest slowdown since 1990 and support local exporters.

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Brazil Details U.S. Link in Petrobras Case — Energy Journal

Christopher Harder – The Wall Street Journal, 8/12/2015

Authorities involved in a probe of the Petroleo Brasileiro SA corruption scandal have for the first time cited suspected wrongdoing on U.S. soil, Will Connors reports, saying two suspects allegedly discussed a bribe-for-contract deal at a Manhattan hotel.

“It is certainly significant. Having somebody in the U.S., where there was some action that furthered the conspiracy, would be a very good jurisdictional hook” for the U.S. Justice Department, said Bill Michael, a lawyer with Mayer Brown LLP. The Justice Department and Securities and Exchange Commission opened investigations last year into Petrobras, whose shares are traded in New York.

The suspects apparently had expensive taste. A Chinese shipping executive, Hsin Chi Su, and a Brazilian, Hamylton Padilha, working on behalf of the Houston-based oil-services company Vantage Drilling Co., met at the Four Seasons Hotel in 2008, according to Brazilian prosecutors. They agreed to bribe key Petrobras executives and politicians to successfully win a contract, according to prosecutors.

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Brazil traders find silver lining in rating downgrade by Moody’s

Filipe Pacheco and Julia Leite – Bloomberg, 8/11/2015

Moody’s Investors Service cut Brazil to the cusp of junk on Tuesday, and it was the first piece of good news investors had heard in a while.

The company’s decision to assign a stable outlook to Brazil’s rating, now at the lowest level of investment grade, was welcomed by traders who had been widely anticipating a negative outlook. The real pared losses, futures on the Ibovespa stock gauge jumped higher, and local bonds gained.

Brazilian assets sold off in recent weeks on speculation the country was veering closer to a junk rating after the government lowered its fiscal target amid the country’s worst recession in 25 years and a growing political crisis. While Moody’s says debt levels will keep rising to about 70 percent of gross domestic product by the end of President Dilma Rousseff’s term, a flexible exchange rate and plenty of reserves mean a cut to below investment grade isn’t imminent.

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