International credit markets may still be tight for companies in the developing world, but Brazil’s domestic bond market looks ready to pick up the slack. As of June 15 five Brazilian companies have bond sales worth $2.2 billion on tap. That’s a huge shift from the first half of June when no Brazilian company sold bonds because fears that the euro debt crisis would spread to Brazil had closed down the local debt market. No Brazilian company has raised money overseas since April 30, according to Bloomberg.
And where is this cash going? Into a continued expansion and restructuring of the Brazilian agricultural sector with an emphasis on exports of food and ethanol from sugar cane.
In other words Brazilian domestic investors are putting their money where the country’s strengths are. And that’s unleashed a spate of deals, financed by local debt or by companies that suddenly feel confident that they can tap the local debt market.
For example, Marfrig Alimentos, the second largest beef producer in Latin America, will raise $1.4 billion by selling five-year convertible bonds to buy Keystone Foods, a chicken and beef producer in West Conshohocken, PA. (The Brazilian company has also announced plans to issue an American depositary receipt (ADR).) With purchase of Keystone, Marfrig buys into the North American and European fast food and prepared foods sectors. Marfrig will become a supplier of chicken nuggets, hamburgers, and other protein products to McDonald’s (MCD), Subway, and Campbell Soup (CPB) in thirteen countries including the United States, France, and Australia. Marfrig has made 38 acquisitions in the last three years including the purchase of Cargill’s chicken and pork business in Brazil for $705 million.
Or how about this deal?
Brazil’s state-controlled oil company Petrobras (PBR) is investing $239 million in the Sao Martinho sugar milling group that will give Petrobras 49% of the ethanol produced by two of Sao Maratinho’s ethanol plants. This comes on top of an April 30 investment that secured a 46% stake in Acucar Guarani, one of the Brazil’s biggest sugar and ethanol companies. Petrobras distributes ethanol made from sugar cane through its service stations in Brazil. The company has set a production target of 1 billion gallons by 2013.
The big prize isn’t Brazil’s domestic market, however, but the global market for biofuels, where Brazil is already the world’s largest exporter of ethanol. To go along with its acquisitions in Brazil’s center-west, Petrobras is building an ethanol pipeline and river barge system to carry ethanol to its main refineries in ports in Sao Paulo and Rio de Janeiro states.
Petrobras isn’t the only big ethanol and sugar group to have export plans and to be making export investments.
Cosan Industrial & Comercio (which trades on the New York Stock Exchange as an ADR with the symbol CZZ), the world’s biggest sugar-cane processor and 84 other Brazilian ethanol makers are seeking authorization to build a $1.7 billion pipeline to ship fuel to the coast. The joint venture Uniduto Logistica, has requested an environmental permit for a 375-mile-long pipeline that will take ethanol from the north of Sao Paulo state to a port on the southeast coast. Plans call for construction of the pipeline to start in the first quarter of 2011 and for the pipeline to begin operation by 2013. The joint venture has said it may sell shares in the pipeline once it is in operation.
Cosan will own a 30% share of the joint venture with another 30% stake owned by Copersucsar, itself a joint venture between mills that process about 20% of Brazil’s sugar cane.
Analysts project earnings growth of 40% for Cosan in fiscal 2011. The ADR has traded at a 52-week high of $10.96 and a 52-week low of $4.67.