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Thomas BlottFROM THE ARCHIVE: 10 years ago this week
THE FINANCIAL CRISIS
From July 19 2008 issue
Vale sets record, at a price
If there was one company in
Latin America that seemed like
it could pull off any deal, any
time, it was Brazilian mining
giant Vale. However, last week’s
equity follow-on challenged
that assumption. The company
can claim to have completed
the largest equity offering in the
history of Latin America, having
raised US$11.55bn, but the deal
was a struggle that saw traditional
investors keep away and the
aftermarket was weak.If the 26.4m preferred share
greenshoe is exercised the
US$12.2bn raised will make Vale’s
transaction the 18th-biggest in global
equity market history. Few others
could claim to have completed as DJ
Industrials hit two-year lows.
However, the deal was not plain
sailing. Vale’s Brazilian controlling
shareholder, Valepar, ended up
taking about 34% of the total deal.
In fact, most of the deal was bought
in Brazil after local pension funds
picked up the slack. Ordinarily
Brazilian blue-chip listings tend to be
largely placed with foreign investors.
Foreigners bought only 31.17% of
the 256.9m voting shares offered.
Most of the big bids by foreigners
are understood to have come from
sovereign wealth funds, while
traditional EM equity funds put in
small bids.Through the storm?
A strong second-quarter profit from
JP Morgan, a smaller than expected
loss from Citi and an apparentlydisastrous set of numbers from
Merrill Lynch fuelled market
volatility last week.
But those keen to look
on the bright side can take
encouragement from the results.
Even the Merrill numbers at
least showed that the firm has
successfully cut its exposure to the
most troublesome assets.
In addition, the Merrill and Citi
losses were significantly less than
they reported in the fourth quarter of
2007, hinting that the industry might
now have put the worst of the market
dislocation behind it. Nevertheless,
falling revenues away from credit
suggest that banks are in for tough
times ahead in other businesses.
The three firms’ numbers came
after investors’ stomachs had already
been tested by the euphoria on
Monday that had followed statements
of US government support for Freddie
Mac and Fannie Mae, and the intense
gloom that descended on Tuesday on
a worsening outlook for the broader
economy.For whom the bell tolls
In one of the largest bankruptcies
in Spanish history, real estate giant
Martinsa Fadesa filed for creditor
protection last week with debts of
more than €5bn. Even though the
company appears to have enough
assets to cover its debts, with much
of the Spanish property market now
illiquid, lawyers are warning that
liquidation could be hard to avoid.
Martinsa Fadesa filed for
bankruptcy protection last week
after negotiations to refinance €4bn
of bank debt collapsed when it failed
to secure an ICO €150m credit line
that the bigger deal was dependent
on. The company filed for “Concurso
Voluntario”, which is a Chapter 11
style protection from its creditors.
Martinsa Fadesa’s failure is the
largest bankruptcy since Spain
introduced new insolvency rules
in 2004, and probably the largest
in Spanish corporate history. The
business has an enterprise value of
about €6bn and had assets valued at
around €9bn in spring of this year.