Posts Tagged ‘emerging markets’

Brazil’s Itaú-Unibanco rides wave of banking consolidation

itau-unibanco1Following last years merger between the number four & number two banks in Brazil last November, the newly forged conglomerate, Itaú-Unibanco (NYSE : ITU) is the frontrunner in a race for consolidation in the Brazilian banking market. The result being that Itaú-Unibanco is now 13% larger than Banco do Brasil and 58% than the other two main rivals, Bradesco (NYSE : BBD) & Spain’s Santander (NYSE : STD). At current prices, Itaú-Unibanco’s combined assets total $201 billion, while Banco do Brasil holds $178 billion and Bradesco $128 billion, only one billion ahead of Santander.

In the credit card segment, Itaú-Unibanco serves an estimated 30% of all credit cards issued in Brazil, which brings circa 36% of all cc revenues, making them far & away the market leader overnight. Unibanco brought a number of strategic assets with it in the November deal, notably Wealth Management with more than R$32.7 billion in assets under management, 14,356 points of service and 17.5 million customers.

Although there are obvious challenges in merging two large companies such as these, Itaú-Unibanco’s Chairman Pedro Moreira Salles remains bullish on expansion. Company executives are rumoured to be looking for international acquistion targets, Mexico being one of the favoured target countries.

“We want to be a bank that has the skill to operate around the world. We aspire to have a global scale” said Salles.

Sector watchers claim that Brazil’s banking consolidation will continue apace in 2009, the expectation being, in three to five years, five banking giants will control 85 percent of the market, with a balance between one public bank (Banco do Brasil), two private Brazilian banks (Itaú-Unibanco & Bradesco), with two foreign banks (Santander & HSBC).

Emerging South refutes WSJ Online

A first for MyStockVoice, until now, all the content on the blog has been compiled by yours truly, however John Baeyens over at Emerging South put together a very interesting post which flicked my switches. Basically John is refuting a report & more importantly the figures attached on a piece in the Wall Street Journal Online.

Can only back him up on this, as the mainstream press do have a habit of manipulating figures to suit their editorial slant. In a classic two legs good, four legs bad article, the WSJ managed to misquote (negatively)  Brazil’s public debt / GDP ratio by a “measly” 20%.

Johns excellent post containing plenty of authoritative links can be read here : Emerging South

ABB : Switzerlands Sleeping Giant

abb1Swiss power & automation specialist ABB is moving from strength to strength with the recent announcement of a €550m contract which integrates with a green power project in Ireland. Irish system operator Eirgrid, has ordered a transmission system using HVDC Light (high-voltage direct current), an ABB technology with environmental benefits that include neutral electromagnetic fields, oil-free cables, low electrical losses, and compact converter stations. The solution will allow Ireland to expand wind power generation & via the new link, will enable it to import power from the UK as needed & to export power when it generates a surplus.

“We are delighted to partner Eirgrid for this project,” said Peter Leupp, head of ABB’s Power Systems division. “ABB’s HVDC Light technology will enhance the stability of both the Irish and U.K transmission grids, and also expand capacity for the use of renewable power.”

For those not in the know, ABB Ltd, is a global leader in power and automation technologies, enabling customers to improve performance while lowering potential environmental impact. The company has operations in 87 countries globally & currently carries a workforce of approximately 110,000 employees, delivering complex power projects into logistics, energy, industry & utility sectors.

This is just the latest in a string of deals that ABB (NYSE : ABB) has managed to pull together in the face of the turmoil in global markets. Looking at ABB’s press release pages, it is apparent that the company has capitalised on its almost unique position as a global player in its field. In 2009 alone, ABB has so far announced in the region of $2.3bn in new contracts, a strong performance in these troubled times. Referring to ABBs annual report (a weighty 7.4Mb file) from 2008, revenues rose 20 percent to a record $34.9bn as the company continued to drive growth & also managed to deliver on its strong order backlog, more on that later. Earnings before interest and taxes (EBIT) reached $4.6bn, with the company recording it’s second highest net income statement in its history, even after provisions taken in the fourth quarter, which saw the order book drop by 60% on 2007 Q4 earnings. Admirable stuff. Even more admirable is the fact that ABB exited 2008 with an order backlog in the region of $24bn, which is a huge cushion to take it through the troubled waters of 2009.

ABB is not however resting on its laurels, under the new management team of CEO Joe Hogan (recent head of GE’s Healthcare division), has reacted to the global shift, as ABB business is pretty much tied to GDP of the countries it operates in, Hogan has instigated a cost reduction plan that should pair costs by as much as $1.3Bn per annum. The company has recognised that its orders are down in Europe, as industrial & construction demand has dramatically slowed. Also in Asia, ABB has suffered, mainly due to the fact that the explosive growth in the region in 2007 could not be offset in 2008.

One area that I am sure ABB will be focusing on is Emerging Markets, which will need to continue expanding their power grids for years to come, while mature economies in North America and Europe will only look to smaller upgrades to legacy platforms. This can already be seen in recent wins in Mozambique, Kuwait, Oman, Saudi & South Africa. The company is also looking into how it may capitalise on the fact that countries must tackle climate change, if they are to continue to grow their GDP & satisfy growing consumer demand for greener technologies.

I feel that ABB is under recognised by the markets & looking at the ADR’s performance against the criteria above, can only come to the conclusion that it is severely undervalued at todays price of $13.50, having reached a 52 week low of $9.11. Past shrewd management of assets, coupled with a typically Swiss style of quietly acquiring smaller companies to either subsume competition or add to its technology base make ABB a winner for me. To that end, I instigated a buy on the ADR yesterday & am setting a target price of $25 by Q3 of 2009. I am also of the opinion that ABB will profit from some of the new energy projects that have been announced & which I have previously commented upon on MyStockVoice, particularly in the Brazilian Petrobras (NYSE : PBR) & the West African Total (NYSE : TOT) projects.

Total continues emerging markets investment & expansion

total-oil-logo1Total SA (NYSE – TOT), France’s largest company, announced the highest annual net profit in French corporate history last week, sounding a rare positive note in todays grim financial meltdown. In 2008 the firm made a profit of  €13.9 Bn ($18.0 Bn) thanks to record oil prices in the first half of the year, which helped offset the second half collapse in oil prices. Profits began to fall in the fourth quarter of 2008 as the credit crunch hit demand, sending crude prices tumbling. Total is now preparing for the future by investing in increased capacity in new fields, especially in Africa & the Middle East, whilst putting the brakes on production in Canada & the North Sea.

“Unprecedented volatility marked the 2008 market environment,” said Total chief executive Christophe de Margerie, noting that oil had peaked at about $150 a barrel last year before plunging to as low as $35

With regards to its North Sea operations, Total has reviewed its capital expenditure for 2009 due to the fall in oil prices. Senior vice president for Northern Europe, Michel Contie, remarked that an oil price of $40 per barrel was required to realistically develop new fields in the North Sea, as many new offshore discoveries are “not economic today.”  The Joslyn & Surmont heavy-oil ventures in the Canadian Athabasca project are among the “building blocks” for boosting output from 2016, the oil sands projects are expected to provide Total with almost 300,000 barrels a day of production capacity by 2020, as reported by Bloomberg : Total is “reevaluating costs, technologies, structure and timing of Canadian projects”

In a recent aggressive move, Total has offered to buy Canadian oil-sands explorer UTS Energy Corp for $ 617 million Canadian ($505 million), which rejected the bid as “inadequate.”  UTS has advised shareholders that the bid should be rejected, as the book value of the company is pegged at twice the unsolicited offer. Total reiterated today that oil sands need crude prices at $80 a barrel for investment, which to my mind displays that they are looking to bank up potential reserves for a time when oil demand will flip to the upside. Until then, Total looks as though it is banking on emerging markets to provide the spur to growth for the forseeable future.

In Nigeria, Total is the lead company in the Apko offshore oil field, where it is partnered with MSV’s favourite oil firm, Petrobras (NYSE – PBR) & state-owned Nigeria National Petroleum Corporation, the field is estimated to have reserves of up to 1.6 billion barrels of sweet crude in reserve. In order to help fund the project, the three existing shareholders agreed to auction off a 45% stake in the field to Indias state controlled ONGC for an estimated $2 Bn.

In Yemen, Total will soon start shipping liquefied natural gas from the Gulf of Aden, bringing into operation a $4 billion project begun less than four years ago. The shipments will make Yemen the newest member of the world’s small club of gas exporters & should earn the government as much as $50 billion in tax revenue over the next 25 years.

In Angola, as discussed in a previous post, Total is set to continue with a $9 billion investment to raise production, despite the huge drop in crude prices since July last year. In a joint venture with Chevron (NYSE – CVX) & others, the Tombua-Landana oil field is expected to come online, contributing a further 120,000 bpd to Totals existing operations. Meanwhile, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil from depths of up to 1,200 metres,beginning in 2011, according to the company’s website. Presently, Total is the third biggest oil producer in Angola after Exxon & Chevron, pumping over 500,000 barrels per day.

During his presentation lat week, CEO  de Margerie stated that Total is also interested in entering the upstream sector in Brazil, particlualrly in offshore projects such as the Santos basin and is also eying new acreage in Venezuela.

“We have had discussions with Petrobras and told them officially that we would be interested either in entering existing discoveries or taking part in the next bids on new acreage,” de Margerie told reporters at a briefing in London.

He stressed that Petrobras needed financing to develop the reserves in the offshore basin, but that Total was not interested in merely becoming a financial partner in Brazil. De Margerie also said Total would be interested in bidding for new exploration acreage in the extra heavy crude oil Orinoco Belt in Venezuela.

“There is room for additional development  & we will be one of the companies to get access to the bid data, and we may bid,” he said. “We need to operate in Venezuela in good conditions, but it is an important target in terms of acreage” .

De Margerie said Total was right to stay in Venezuela despite the nationalization by President Hugo Chavez of large swathes of the country’s oil industry in 2007. Chavez nationalized oil fields when crude prices were on what looked like an unstoppable bull run, and as a result ExxonMobil and ConocoPhillips left Venezuela and are still runiing legal battles over disputed projects. It was reported earlier this year that Venezuela is now looking for new bids to develop fields from both global majors and state-run oil companies. Total which saw its stake in the Sincor project reduced from 47% to 30.3% in Chavez’s ambitious move remains committed to the project.

“We have to make sure our existing Sincor project delivers–this is still a real challenge,” he said.

Looking at Total from an independent viewpoint, it is obvious the management are playing a canny game. We have seen them exit or scale down high cost projects, such as Saudi Arabia, UK & Canada, whilst at the same time, investing heavily in emerging market prospects, as is clear from this article. What also impresses me about this company is its track record of working well with IOCs such as Chevron as well as local state entities & as long as it continues with this “nimble” approach along with a prudent focus on legacy operations, the future looks very bright indeed.

the Bear & the Dragon shake hands on $25Bn energy deal

siberianpipeline1Whilst having previously discussed the Byzantine workings of Russia’s energy players in previous articles & also the direction that China has taken recently in securing strategic reserves, it was only a matter of time befiore the Dragon & the Bear came to an accord together. During a visit to China this week, Russian Deputy Prime Minister Igor Sechin has succeeded in bringing together a massive deal for Russian oil producers in Siberia.

On Tuesday (17/02/09), Russia and China signed  an intergovernmental agreement on the construction of a branch of the East Siberia-Pacific Ocean (ESPO) oil pipeline toward China. Under this agreement, Russia will supply 15 million metric tons (300,000 barrels per day) of crude oil annually for 20 years to China, in return China via state owned China National Petroleum Company (CNPC) will extend a total of $25 billion in loans to Russian state-controlled crude producer Rosneft and pipeline operator Transneft at 6% per annum in exchange for the long-term oil supply. Transneft plans to start building a Chinese leg of the East Siberia-Pacific Ocean later this year and to commission it in 2010, Russia’s monopoly pipeline operator said in a statement on Tuesday.

“The construction of the leg should be synchronized with the construction of the first line of the ESPO pipeline,” the statement quoted the company’s vice president, Mikhail Barkov, as saying. Barkov also said that China’s $10 billion loan to Transeft would primarily be invested in the construction of the Chinese leg. “In addition, there are projects that will contribute to the functioning of the entire eastern pipeline and this leg in particular,” the Transneft official said.

The pipeline’s first leg was launched in October 2008 in the reverse direction, running westwards. The construction of the pipeline, designed to bring Russian oil to the lucrative Asia-Pacific market, is due to be completed later this year, which will enable ESPO to pump its first oil eastwards. The terms of the agreement stipulate that China will extend a $15 billion loan to Russian state-run oil giant Rosneft against the guarantee of oil supplies, while Transneft’s $10 billion would be granted with the infrastructure as collateral. Currently Rosneft, which is expected to be the main oil exporter via the pipeline, supplys around 10 million tonnes of oil a year to China by railway under the terms of a deal signed in 2004.

The ESPO was originally conceived in the mid-90’s by now disgraced Yukos Chairman, Mikhail Khodorkovsky, as a private pipeline. Following the “collapse” of Yukos, state owned Transneft picked up the baton & began construction of the first leg in 2006, which completed last year. The pipeline is supplied via spurs from the Tomsk Oblast & Khanty-Mansi Autonomous Okrug oil fields in Western Siberia, Transneft’s existing Omsk-Irkutsk pipeline has also been connected, allowing Rosneft to pump up to 22 million tons of oil annually into the pipeline, whilst smaller competitor Surgutneftegas will contribute around 8 million tons.

Anglo-Russian or Russo-Anglo (depending on which side of the political fence you sit on) TNK-BP is also involved in this project, having began supplying oil to the pipeline in October 2008. TNK-BP in a joint venture with Rosneft has extensive operations in the Verkhnechonskoye field, which has proven reserves of 409 million barrels of oil equivalent.

“The first shipment of VC crude into the ESPO marks an important event for TNK-BP and for the industry.” commented Chief Operating Officer Tim Summers at the launch. ” We are establishing a major new production center in East Siberia. Application of world—class technology and the timely launch of the ESPO pipeline allowed us to begin commercial development of this project, which has been deemed uneconomic for the past 30 years. The beginning of regular commercial shipments from VC to the ESPO marks the emergence of East Siberia as a new and important oil and gas province in Russia”.

So win-win all round? Certainly for the Chinese in the long term, as we have argued in previous articles, China is on a spending spree on commodities, particularly in the energy sector where it seems almost desperate to secure strategic reserves. Russia also gains, in that with the recent devaluation of the rouble, access to funding in capital markets has been harder to come by, especially for Russia’s energy firms. Do we in the West gain from this ? That remains to be seen, from a persoanl viewpoint, this may well help to stabilise geo-political issues in the region whilst also contributing to oil price stability in the long run.

Petrobras – a shining light for oil service firms

logo_petrobrasWith the recent announcement that Petrobras (NYSE – PBR) would raise its five-year investment plan by 55%, knock on effects have been felt throughout the oil services industry & have spurred analysts to look at Brazil as one of the emerging markets that may lead the way in recovery from the current financial crisis. “Petrobras’s long awaited 5 year plan contains good news for service companies active in Brazil,” Keith Morris, analyst at Evolution Securities said in a research note.

State controlled Petrobras, announced a crisis-busting investment plan Friday to spend more than $174 billion over the next five years, much of it for deep-water oil and gas exploration. The investment period runs through to 2013 and represents a rise of 55% over the $112.4 billion the company had originally planned to spend on development between 2008 and 2012.

This investment is “very robust and very important for the continuity of Petrobras’s growth,” José Sergio Gabrielli, the company’s chief executive, told reporters on Friday at a news conference in Rio de Janeiro.

$10 billion of this capital would come from the BNDES national development bank with a 30-year repayment term. The bank has been stepping in and offering credit under favorable terms to local businesses, after international lenders pulled out due to the global financial crisis. BNDES has so far committed to bankrolling $11.9 billion of Petrobras’s investment budget this year, with an additional $5 billion coming from international banks. Chief Financial Officer Almir Barbassa said that the oil giant  will continue to work on cost cutting measures in order to free up as much as $4 billion annually in the next two years for investments and in an attempt to prevent debt from swelling. The company will seek to keep its investment-grade debt rating as it invests $174.4 billion in the next five years, he said.

Petrobras has based its 2009-2013 plan on Brent crude at $42 a barrel, with financing needs for 2009year based on Brent at $37 a barrel. Brent futures for March delivery are currently trading at a median of $47 a barrel the last two weeks, although the price was as low at $36 last month. Petrobas has set total investment for 2009 at $28.6bn. With Brent at $37, this requires finance of $18.1bn, of which Petrobras has already secured $16.9bn, including the $11.9bn from the BNDES. As previously discussed in India & China move to secure oil reserves , the Chinese development bank approached Petrobras with a $10Bn offer in December, it is unclear if the Chinese offer is part of PBR’s calculations or not.     

Today, according to Bloomberg, Petrobras has stated that it is suspending a planned bond sale on the international markets, as there is no need to raise more funds in 2009 after securing $17.5 billion in financing from Brazil’s state development bank and other lenders. Borrowing costs have climbed after the global credit crisis led investors to shun emerging-market debt and oil slumped 72 percent from a record $147.27 a barrel on July 11.

“We want the financial market to adjust the costs to the risks Petrobras has,” Gabrielli, 59, said in an interview with Bloomberg TV in New York yesterday. “Petrobras’s risk curve needs to be more realistic than it is today. We need to observe the market conditions and go to the market when they are more favorable.”

Petrobras and partners including Repsol (NYSE – REP) and BG Group (LSE – BG) discovered vast deposits of oil under more than 4,000 meters of water, rock and salt in 2007. The deposits are at previously untapped depths and will be costly to extract, they hold an estimated 8 billion to 12 billion barrels of oil, according to Petrobras figures. It is thought that other reserves may be nearby in other as yet unexplored blocks. The flagship Tupi field is estimated to hold between 5 to 8 billion barrels of light crude oil and is the world’s biggest new field since a 12-billion-barrel find in Kazakhstan in 2000, whilst a second fin, Iara, is estimated to run between 2 to 4 billion barrels.

Companies with experience in deepwater and subsea engineering are expected to be key beneficiaries from the finds, this already being reflected in the market, with companies such as Swiss based Transocean (NYSE – RIG) showing an uptick in share price. Likewise in London, oil pipe manufacturer rose by more than 12% following Fridays announcement by PBR, which is Wellstreams largest customer. Analysts have noted that interest is running back into oilk service firms globally in the last week, with Norwegian engineering firm Acergy registering a 4% gain, bucking the market trend.

This could also be good news for US firms that are involved in South American finds, Devon Energy (NYSE – DVN) , the largest indepandent oil firm in the US, recently signed a long lease deal for the deep sea exploration vessel Deepwater Discovery from Transocean. Devon has had pre-salt production running in Brazil since 2007 on their Polvo field & have an additional 9 blocks that are waiting to be fully surveyed. One of these, the Wahoo prospect is currently drilling at approximately 18,600 feet. Devon & its partner partners plan to conduct additional evaluations of the well when it reaches its total targeted depth of approximately 20,000 feet.

“We are encouraged by what we have seen so far in the Wahoo well and look forward to the results of additional testing and evaluation,” said Stephen J. Hadden, senior vice president of exploration and production. “Brazil has been the site of some of the most promising recent deepwater oil discoveries in the world. Devon has an active exploration program under way in Brazil with other very attractive prospects nearing the drilling stage.”

The spending plan “means there’s going to be a lot of investment for the oil and gas sector in coming years,” said Roberto Lampl, who helps manage $12 billion in emerging-market assets at ING Investment Management in The Hague. Foreign direct investment “was still pretty high for December and that’s definitely positive.” “On a relative basis we see Brazil as very attractively valued and we are fairly positive on the country and various companies,” said Lampl, who moved to an “overweight” position on Brazilian stocks at the beginning of this year.

Brazil received a record $45.1 billion in foreign direct investment in 2008, the central bank said in recent report, FDI surged to $8.1 billion in December, more than twice the $3.1 billion median estimated by economists surveyed by Bloombergs.

Zambia looks to part privatise Zamtel

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