Here is why the world’s smart money is being invested in Brazil.

Discussion in 'Economics' started by SouthAmerica, Sep 7, 2006.

  1. .

    October 23, 2006

    SouthAmerica: On Wednesday, September 6, 2006 “Brazzil” magazine published an article “While the American Dream Is Outsourced Brazil Drives the World into the Future” which is the information that started this thread and – Quoting from that article:

    …The Forbes Magazine cover story on the issue dated March 13, 2006 "Private Inequity," gives a detailed account of how the "private equity firms" or "leveraged buyout funds" operate in the economy as parasites, or blood suckers - and these companies are milking the American economic system dry, making their money by gutting these companies, pillaging everything in sight; including their pension funds, and by eliminating jobs and closing many parts of the business. And they do that on the regular basis, year after year.


    But now "Business Week" magazine also decided to “raise the red flag” about what is happening regarding the “Private Equity” companies, and this major raping that is going on of our economic system.

    The cover story of the current issue (October 30, 2006) of Business Week said the following - “Gluttons At The Gate” Private equity are using slick new tricks to gorge on corporate assets. A story of excess.

    Three weeks after giant private-equity firm Thomas H. Lee Partners agreed to buy an 80% stake of Iowa Falls ethanol producer Hawkeye Holdings in May, Hawkeye filed registration papers with the Securities & Exchange Commission to go public. The buyout deal hadn't even closed yet, but Thomas H. Lee was already looking forward to an initial public offering expected to generate a huge profit on its $312 million investment. The firm didn't just cross its fingers and wait, however: It took $20 million from Hawkeye as an advisory fee for negotiating the buyout and a $1 million "management fee"--and will soon take about $6 million to meet its own tax obligations. All told, Thomas H. Lee will collect payments of around $27 million by yearend--despite Hawkeye's having earned just $1.5 million in the six months through June.

    These are crazy times in the private-equity business. It used to be that buyout firms would spend 5 to 10 years reorganizing, rationalizing, and polishing companies they owned before filing to take them public. Thomas H. Lee couldn't have created much lasting economic value in the three weeks before the filing, but that didn't stop it from writing itself huge checks from Hawkeye's ledger. Thomas H. Lee and Hawkeye declined to comment…..

    You can read the entire story on Business Week about the "Private Equity" pillaging of everything in sight at:

    #71     Oct 23, 2006
  2. toc


    'These are crazy times in the private-equity business. It used to be that buyout firms would spend 5 to 10 years reorganizing, rationalizing, and polishing companies they owned before filing to take them public.'

    While anamolies do exist in markets, but asset valuation should reach same values if done by professionals. The reason private equity guys like to go public quickly is to cash into the market euphoria which blows off the price much more than deserved. It all boils down to investment banking prowess in many a cases.
    #72     Oct 23, 2006
  3. .

    November 28, 2006

    SouthAmerica: On my article published in September 2006 – the article that I mentioned when I started this thread - I quoted on that article the following from Forbes Magazine:

    “The Forbes Magazine cover story on the issue dated March 13, 2006 "Private Inequity," gives a detailed account of how the "private equity firms" or "leveraged buyout funds" operate in the economy as parasites, or blood suckers - and these companies are milking the American economic system dry, making their money by gutting these companies, pillaging everything in sight; including their pension funds, and by eliminating jobs and closing many parts of the business. And they do that on the regular basis, year after year.

    The Forbes article said: "Driven by greed, private equity firms or leveraged buyout funds have been making a lot of money over the years - There would be no reason for people to complain if these financiers were building enterprises and creating jobs. But they do not make their fortunes by discovering new drugs, writing software or creating retail chains. They are making all this money by trading existing assets.

    ...Moreover, some buyout shops ply rape-and-pillage tactics at their new properties. They exact multimillion-dollar fees advising businesses they just bought. They burden a target company with years of new debt, raised solely to pay out instant cash to the buyout partners.

    ...More politely known as a dividend recapitalization, this quick-buck ploy, entirely legal, paid out $18 billion in instant gratification to new owners last year, Standard & Poor's says. Now and again corporate carnage follows, as thousands of employees lose their jobs, long-term prospects are diminished and the business files for bankruptcy, stranding minority investors and debt-holders.

    ... Globally, 2,700 funds are raising half a trillion dollars in cash to invest; this will bankroll them for $2.5 trillion in deals in 2006..."

    Hedge funds also are competing with the "private equity firms" or "leveraged buyout funds" for these get rich quick type of schemes.”


    Here is another related article on the same subject that it has been published on the latest issue of Business Week.

    Business Week – December 4, 2006
    “Public Scorn For Private Equity” By Moon Ihlwan
    Spurred by the outcry over huge profits, prosecuters are going after foreign firms

    Lone Star Funds of Dallas is one of the savviest global investors around. Its managers have put more than $13 billion to work in buyouts and other deals around the globe. A big coup: bagging 51% of Korea Exchange Bank, one of South Korea's largest financial institutions, in 2003 for the low price of $1.5 billion. After cleaning out the bad debt and sprucing up customer service, Lone Star and its local partners were ready this year to sell out to Kookmin Bank of Korea for an estimated profit of almost $5 billion.

    Lone Star, however, did not count on rising Korean wrath over the huge returns foreign private-equity firms have scored by buying and selling local assets. And Lone Star certainly did not count on aggressive prosecutors in Seoul delving into the Korea Exchange Bank deal for possible criminal wrongdoing. On Nov. 20 prosecutors indicted the Belgian company Lone Star set up to take over the Korean bank. The charge: stock price manipulation. On Nov. 16 a Seoul court even issued warrants for the arrest of Lone Star co-founder Ellis Short and Lone Star's general counsel.

    The indictment caps almost a year of street protests, court maneuverings, and blistering newspaper editorials, all on the subject of Lone Star. The Texas firm declined to comment to BusinessWeek, but on Nov. 13, Chairman John Grayken accused the Korean prosecutors of making "slanderous claims against Lone Star and its employees." The ferocity of the Korean investigation has alarmed observers. "I'm worried about this pseudo-nationalist fervor being whipped up," says Kim Sang Jo, a leading shareholder activist. "This could discourage foreign investment." One local private-equity fund manager says he already knows of foreign investors who are steering clear of Korea.

    Foreign players now have big exposure in Korea. Non-Koreans own some 40% of all shares traded on the Seoul bourse, while foreign direct investment has totaled some $90.8 billion since the Asian crisis in 1997.

    Although the Lone Star case has the highest profile, other investment funds have come under intense scrutiny. In April prosecutors charged the local head of U.S.-based Warburg Pincus with insider trading in connection with the 2003 purchase of troubled LG Card Co.: He is still on trial. Another U.S. fund, Newbridge Capital, was investigated last year by the tax office for allegedly making a $1.2 billion tax-free profit from the sale of its interest in Korea First Bank. The tax office has declined comment on the probe's status.

    Korean prosecutors accuse Lone Star executives of manipulating the stock price of Korea Exchange Bank's credit-card unit, which once traded separately from the bank. The prosecutors allege that after Lone Star purposely depressed the shares of the credit-card business, it scooped up the subsidiary for a bargain price. A separate investigation is under way into allegations that Lone Star executives bribed regulators into letting the U.S. firm inflate the value of bad loans on Korea Exchange's books. That way say prosecutors, Lone Star got to pay even less for the bank.


    Koreans also think the huge tax-free profits earned by foreign funds in their country are a scandal. Tax authorities have argued that many private-equity funds sheltered their Korean profits from taxes by setting up companies in tax havens to control their Korean assets.

    Beneath the legal wrangling is a dramatic change in Korean psychology. In 2003, Lone Star was hailed as a savior, the brave outsider willing to invest in financially troubled Korean companies. Now it's depicted as a demon bent on making a quick buck and trampling corporate ethics underfoot. As one local paper, The Herald Business put it, no other tax evader was more "habitual and wicked" than Lone Star. Whatever the validity of the prosecution's case, Korea risks reverting to an earlier suspicion of foreigners that sharply limited outside investment.

    #73     Nov 28, 2006
  4. From reading some of your last posts SA... I think you would be
    a happier person if you moved to either China, India, or Brazil.

    Have fun when you get there.
    #74     Nov 28, 2006
  5. .

    February 15, 2007

    SouthAmerica: The Brazilian economy it is looking very good today – and it can look even better in the coming years.

    The Brazil’s GDP for year 2006 it is estimated to be around US$ 1 trillion dollars.

    …The deficit, including federal and local government and state companies, widened to 70 billion reais (US$33 billion), or 3.35 percent of gross domestic product.


    Brazil's net debt as a share of GDP dropped to 50 percent in 2006 from a revised 51.5 percent in 2005, the central bank said. Altamir Lopes, head of the central bank's economic research department, forecasts Brazil's net debt may drop to 48.8 percent of GDP by year-end.

    …Brazil's central bank expects the budget gap to drop to 2.14 percent of GDP in 2007 from 3.35 percent of GDP last year as a result of the reduction in interest payments to an estimated 6.39 percent of GDP this year from 7.66 percent of GDP in 2006, Lopes said.

    …Brazil's net debt to GDP may drop to 48.8 percent by year- end from 50 percent last year, he said.

    Brazilian government total cumulative debt as of the end of December 2006 was reported to be around US$ 500 billion dollar – and from that amount US$168.9 billion was related to the total external debt - Analysis based on maturity terms shows that the medium and long-term external debt to be US$151.7 billion, while short-term debt was US$17.2 billion.

    Brazil’s International reserves

    As of the end of December 2006 - Brazil was holding US$85.8 billion in international reserves – and these reserves have been increased since then.

    Source: Brazil’s Central Bank

    Note: Don’t forget that Brazilians also have an estimated US$ 200 billion to US$ 250 billion of moneys that they have stashed away outside Brazil in banks around the world. Brazilians have been sending their money to foreign tax havens to protect it against the continuing depreciation of the local Brazilian currency over the years.

    Only in the last 4 years that depreciation trend has changed when compared with the US dollar.

    Part of the appreciation of the real versus the US dollar in the last 4 years
    - it is also the result of the deterioration of the value of the US dollar in the international currency markets.

    #75     Feb 15, 2007
  6. .

    February 15, 2007

    SouthAmerica: The enclosed article describes a smart investment.

    In the other hand, investing in Ethanol mills to produce Ethanol from corn - that is "NOT" a smart investment.


    Bloomberg News – February 15, 2007
    “Louis Dreyfus to Buy 4 Sugar, Ethanol Mills in Brazil”
    By Carlos Caminada

    Feb. 15 (Bloomberg) -- Louis Dreyfus & Cie., a closely held commodities trader, said it agreed to buy four sugar and ethanol mills in Brazil to become the second-biggest sugarcane processor in the country.

    Paris-based Louis Dreyfus, which already owns four sugar and ethanol mills in Brazil, expects the acquisition to boost sugarcane processing to 18.5 million metric tons by 2009, from 11.8 million tons this year, the company said in a statement. Financial terms of the acquisition weren't disclosed.

    Louis Dreyfus will jump ahead of Sao Martinho SA as the second-biggest sugarcane processor in Brazil behind Cosan SA Industria & Comercio. The company is seeking to grow through acquisitions and expansions as demand for ethanol rises, Louis Dreyfus's Bruno Melcher said in phone interview.

    ``There's a lot of room for growth,'' said Melcher, executive director at Sao Paulo-based Louis Dreyfus Commodities Bioenergia, the company's biofuels unit in Brazil. ``Domestic demand for ethanol is growing rapidly every year.''

    Brazil's flexible-fuel vehicles, which can run on ethanol, gasoline or any blend of the two, account for more than 80 percent of new cars sold, helping drive demand for the biofuel.

    Melcher expects ethanol use in Brazil to double over the next four to five years from about 14 billion liters (4 billion gallons) in 2006.

    Forecasts that biofuel demand will continue to rise in coming years has lured foreign investors to Brazil, the world's biggest producer and exporter of sugar and ethanol made from cane.

    Investment Flows

    Vinod Khosla, co-founder of Sun Microsystems Inc., and other venture capitalists plan to invest in a $2 billion fund to back ethanol projects in Brazil, Valor Economico newspaper reported on Feb. 13, without saying how it got the information.

    The investment rush has boosted supplies, driving down the price of sugar. Sugar futures have slumped 39 percent over the past year on the New York Board of Trade, making it the worst- performing commodity. It rose 0.4 cent, or 3.8 percent, to 10.85 cents per pound today at 2:52 p.m. in New York.

    Asset Prices

    The surge in investments has also pushed up the price of mills in the southeast of Brazil, where most sugar and ethanol plants are based, forcing investors to look to other regions, said Patrick Funaro, who runs a ethanol investments fund backed by Societe Generale, France's third-largest bank.

    ``The outlook for investments has improved, pushing up the price of assets,'' said Funaro, whose Sao Paulo-based fund aims to invest as much as $500 million in new sugar mills in Brazil and other countries.

    Louis Dreyfus bought the four mills from closely held Grupo Tavares de Melo.

    The mills Agroindustrial Passa Tempo and Usina Maracaju are in the southwestern state of Mato Grosso do Sul. The Usina Estivas mill is in Rio Grande do Norte state and Giasa is in Paraiba state, both in the northeast of Brazil. Melcher declined to say how much Louis Dreyfus paid for the mills.

    The company also bought Grupo Tavares de Melo's ethanol mill project Usina Esmeralda in Mato Grosso state. Construction of the mill began recently.

    #76     Feb 15, 2007
  7. Ran an old backtest from 2001 to now. Biggest trade on the system was SID. Made about 1000% on it in 6 years.
    #77     Feb 16, 2007
  8. .

    February 16, 2007

    SouthAmerica: Reply to psytrade

    Congratulations, you did pick a Brazilian company that has been doing very well over the years.

    You mean - Companhia Siderurgica Nacional (SID) and on June 10, 2004 that company had a 4:1 split.

    If you bought that stock in Oct 2001 at $ 1.56 per share – today the same stock is trading at $ 37.66 per share.

    SID is a major Brazilian steel company but they also sell their products to other countries from around the world.

    #78     Feb 16, 2007
  9. .

    February 16, 2007

    SouthAmerica: Just an up date on the Brazilian international foreign reserves.

    Brazilian foreign reserves hit an all-time high of US$95.9 billion on Wednesday – and very soon will pass the US$100 billion mark.


    “Brazil to add reserves while liquidity high-cenbank”
    By Walter Brandimarte
    Reuters - Fri Feb 16, 2007

    NEW YORK, Feb 16 (Reuters) - Brazil's policy of building foreign reserves should continue as long as global imbalances support a steady flow of dollars into the country, central bank director Paulo Vieira da Cunha said on Friday.

    "I don't think we will be building up reserves for 10 years ... but we are comfortable with our policy right now," Vieira da Cunha, who heads the international affairs department at the central bank, told analysts in New York.

    He explained that Brazil, like many other countries, keeps intervening in the foreign exchange market to counteract the effect of "global imbalances" caused by a mismatch in world interest rates.

    Low interest rates in the United States, Japan and Europe create carry trade opportunities, allowing investors to borrow in low-yielding currencies to invest in emerging countries like Brazil.

    As a result, Brazilian foreign reserves hit an all-time high of $95.9 billion on Wednesday. They are expected to keep growing as the central bank continues to buy dollars on the foreign exchange market to dry up excess liquidity and, indirectly, prevent the currency from appreciating further.

    Despite the central bank's efforts, the Brazilian real <BRBY> has been trading close to nine-month highs, raising complaints from the industrial sector.

    The interventions are costly because the central bank has to offset them by selling bonds in the local market, in order to drain the excess of reais resulting from the buying of dollars.

    But Vieira da Cunha said that "rather than looking at domestic issues," the central bank focuses on global liquidity conditions to decide whether to stop the currency interventions.

    He acknowledged that one of the costs of the foreign exchange interventions is a delay in a planned reduction of the stock of Brazil's local floating-rate debt, or LFTs.

    The Brazilian Treasury intends to cut as much as possible the share of public debt indexed to the country's base Selic rate. But the paper is the most efficient instrument the central bank has to offset the currency interventions, Vieira da Cunha said.

    "The Treasury would have reduced its stock of LFT much faster if it did not agree with our policy of sterilized interventions, because it knows we need this kind of paper," he said.

    #79     Feb 16, 2007
  10. S2007S



    #80     Feb 16, 2007