Ah, threadsters the day is getting close here, for an actual.... real life down day in the US stock market. Can you believe this will happen?
Keep you eyes on Brazil and the Japanese insurance and pension modalities.
A very intersting article on how a business man in Brazil is coping with the storm(s).
For Private Use Only
(C) Bloomberg
".... Brazil's Brahma Prepares for Possible Devaluation by Hedging $800 Mln Debt
Brazil's Brahma Prepares Currency Devaluation (Update1)
(Updates to rewrite first paragraph, adds details of
spending cuts announcement in 4th paragraph)
Sao Paulo, Oct. 28 (Bloomberg) -- Brazil's government
insists it won't weaken its currency.
Yet Cia. Cervejaria Brahma, Latin America's largest brewery,
isn't taking any chances, hedging all of its $800 million dollar
debt against a possible devaluation of the real.
''I don't want to get caught if there is a devaluation,''
said Brahma Chief Financial Officer Danilo Palmer. ''Whenever
you're faced with serious problems it's good to be
conservative.''
Brahma joins several other Brazilian companies bracing for a
devaluation, even as Brazil is about to receive $30 billion in
aid from international lenders such as the World Bank. To qualify
for the aid, Brazil is expected to announce a detailed package of
spending cuts and tax increases today.
About 60 percent of the company's debt has been hedged by
taking about $480 million of its cash and investing it in U.S.
treasuries, Palmer said. The other 40 percent is hedged through
interest rate swaps conducted through local banks. The swaps, of
Brazilian fixed-income securities for U.S. bonds and notes, carry
various maturity dates, he said.
Palmer emphasized that he's not predicting a devaluation,
but wants to be prepared if one happens.
'Highly Exposed'
Companies ranging from Brazil's largest magazine publisher,
Grupo Abril, to steel company Grupo Gerdau, to real estate
company Brazil Realty SA have acknowledged that they're taking
similar steps to protect against a possible devaluation.
''Brahma has now done what every multinational was already
doing,'' Palmer said. ''If there is a change in exchange policy,
it will turn out to have been a beautiful strategy.''
Still, the move comes at a price, as the company sacrifices
40 percent annual returns available in real-denominated fixed
income securities in Brazil. The U.S. treasuries yield only about
5 percent annually.
''I think it's conservative strategy which is sensible
because there's so much uncertainty regarding the economy,'' said
Salomon Smith Barney analyst Laura Meizler. ''If they don't hedge
and there were to be a devaluation they'd be highly exposed."
Brahma could still suffer if there were a devaluation. Palmer
estimated that 12 percent to 15 percent of the company's raw
material costs are in dollars. That would mean a roughly $50
million increase in expenses, assuming a 20 percent devaluation.
Brahma is feeling other effects from the Brazilian real's
vulnerability, as the high interest rates aimed at protecting the
currency send the country into a recession. Economists expect
Brazil's economy to contract between 1 percent and 3 percent next
year.
''For Brazil, for us, and for all the world, things will be
very tight,'' Palmer said, predicting sales growth next year
could be between 0 and 3 percent, down from 3 percent to 5
percent this year. Sales last year were 2.8 billion reais.
In a phone interview, Palmer wouldn't disclose earnings
expectations. Several analysts have recently lowered estimates.
Morgan Stanley & Co. analyst Lore Serra lowered 1999
earnings per share expectations to 66 cents a share from $1.06 a
share before the crisis. Meizler was even more pessimistic,
lowering estimates to 53 cents a share from 90 cents for the same
period.
Fading optimism about the company is demonstrated in its
stock price, which is down 32 percent year-to-date, in line with
the drop in Bovespa's benchmark index.
This year, everything from a deflationary trend to the
weather is an obstacle. On top of concern about rising
unemployment, an unusually cold and rainy spring in the
wealthiest region of Brazil, the Rio de Janeiro-Sao Paulo
corridor, is also conspiring to put a damper on beer demand.
Brahma said it has a policy of not cutting prices to boost
demand. Still, the company may come under pressure from its main
competitors Cia. Antarctica Paulista and Cervejarias Kaiser SA,
which may cut prices to recoup lost market share, Meizler said in
a report.
Brahma dominates the $7 billion Brazilian beer market, with
a 49 percent market share, and is also pushing into other Latin
American countries, with factories in Argentina and Venezuela.
Brahma also exports to Europe. It also has a joint venture with
Philip Morris Cos. to sell the company's Miller beer in Brazil.
Basic Costs
The brewer also faces a possible tax increase, as Brazil
looks for ways to raise funds to help it meet $65 billion in
foreign obligations coming due over the next 15 months.
''Tax increases are always a risk in Brazil,'' Palmer said.
''Historically, we have demonstrated that when there were sudden
increases, the government ended up retreating, because sales
stopped and they collected nothing.''
Brahma has always tried to work with the lowest possible
costs, but now ''because of what's happening in the economy we're
redoubling our efforts,'' he said, trying to boost productivity
and save on basic costs like water and energy.
Brahma has been trying to keep production as lean as
possible, closing three out of five Brazilian factories of Buenos
Aires Embotelladora SA, which it acquired from the Argentine soft
drink bottler a year ago". |
