Emerging Markets : Sharp Growth In M&A Activity



Gol: Varig offer takes off at last

Brazils IBGE national statistics institute reformulated its methodology for calculating the nations GDP in March, prompting a revision of all GDP data going back to 1996. Under the new formula, which uses United Nations guidelines, IBGE is taking into account what it feels is a more accurate measurement of the informal sector (which it now estimates at 10% of GDP) and gives a greater weighting to the services sector. The change also made Brazils economic record look substantially rosier.

IBGE revised 2006s GDP growth upward to 3.7% from a previous 2.9%, while the figure for 2005 jumped by more than a quarter to 2.9% from 2.3%. Moodys notes that the upward revision will have no impact on Brazils sovereign rating since there have been no changes in government debt ratios to prompt an upgrade.

In a sign of its growing economic confidence, the Brazilian government tapped its local-currency bond due 2017 in April, raising $500 million. The deal, led by Merrill Lynch and Morgan Stanley, carried an option to sell another $25 million to Asian investors. The new bonds offer a 6% coupon and yield 5.888%, the lowest yield for any global real-denominated paper. The yield was a higher 6.25% when the government offered the bonds last November, raising $1.5 billion. In March the sovereign also reopened its due-2028 global bonds, raising $362 million in a deal led by Citi and Barclays. The reopening yields 10.279%, down from 10.68% when the bonds were offered in February.

According to Anbid, the association of Brazilian investment banks, last years M&A; activity topped out at just under $63 billion (including corporate restructures and public share offerings). That figure represents a 273% year-on-year increase. And, ending a years-long corporate saga, Brazilian low-cost airline Gol agreed in April to pay $320 million for cash-strapped Varig, the countrys former international flag carrier. Varig has been plagued by financial and labor woes that have kept it on the brink of bankruptcy.

Antonio Guerrero