- The Washington Times - Monday, September 20, 2004

SAO PAULO, Brazil - Foreign investors are betting that Brazil may no longer be a notoriously unreliable place to park money.

They recently bought up $700 million in initial public offerings of shares in Brazilian companies that make cosmetics, haul goods by rail and fly passengers around a nation nearly the size of the continental United States.

Investment bankers can’t recall seeing so much IPO activity, and it is only the start of a spurt of deal making in South America’s largest economy. Now the mergers and acquisitions business is on the rise, with predictions of more to come in the country of 182 million consumers and a booming export industry.

Brazilian companies aiming to expand also are finding financing much easier to come by than a year ago, when the country was almost shunned.

Foreign investors last week snapped up $600 million of corporate bonds issued by state-run oil giant Petrobras. One of Brazil’s biggest steelmakers then announced it would seek $200 million. State-run Banco do Brasil — the country’s largest — netted $300 million by selling bonds this week and Santander Banespa got $400 million.

The difference appears to be how the financial world views President Luiz Inacio Lula da Silva. A one-time union firebrand who spooked investors after becoming Brazil’s first elected leftist leader, he has changed into a Wall Street darling.

Since taking office last year, Mr. Silva’s administration has reined in inflation with an orthodox monetary policy. It initially drove the economy into a recession but has since put it on a path toward the kind of slow, sustainable growth not seen since the 1970s.

Investors no longer fear that Mr. Silva, elected in a landslide in October 2002 amid promises of new social programs to help tens of millions of Brazilian have-nots, might bankrupt the country and plunge it into Argentina-style economic chaos.

“There were questions which direction the government would take, but I think everyone is now convinced we are on the right track with consistency in all the macro-economic policies,” said Luiz Muniz, who heads the investment bank Rothschild Brasil. “We want fiscal surpluses, and they have delivered. We want controlled inflation, and they have delivered.”

Earlier this year, there were concerns that international investors who seek higher returns in emerging markets would bail out because of rising global oil prices and interest rates. But those fears dissipated and the climate turned positive again after the success of the IPOs, a string of merger announcements and firm evidence that Brazil’s economy is on the mend.

Then the government reported stronger-than-expected second-quarter growth and an economy now poised to expand more than 4 percent this year. Investors cheered again when Moody’s upgraded Brazil’s credit rating last week.

“Clients were worried that it would be a temporary boom,” said Charles Wortman, managing director of J.P. Morgan Chase & Co. who heads the firm’s Brazilian division. “Now it’s becoming clear that the growth is more sustainable.”

This year’s biggest deal closed last month, when Belgium’s Interbrew SA and Brazil’s AmBev completed their $11.4 billion combination to create InBev, the world’s largest brewer. A sampling of other recent deals:

• IPOs by low-cost Brazilian carrier Gol Linhas Aereas Inteligentes SA, which raised $280 million; America Latina Logistica SA, Latin America’s largest railroad operator, for $172.5 million; and Natura Cosmeticos SA, which raised $216 million.

• Mexican telecommunications giant Telefonos de Mexico will pay up to $370 million for a big stake in Brazil’s largest cable television service. That deal was announced just weeks before Telmex, controlled by billionaire Carlos Slim, completed its $400 million purchase of Embratel, Brazil’s biggest long-distance phone carrier.

• U.S. food and farm products conglomerate Cargill Inc.’s announcement this month to pay $130 million for a controlling stake in Seara Alimentos, one of Brazil’s leading poultry and pork producers.

Most of the multinational companies buying into Brazil now are longtime players, such as Cargill, a major soy and sugar processor that has had operations in the country for four decades.

Many Brazilian companies producing at near capacity are now dusting off expansion plans that were shelved years ago. But Mohr-Bell warned that Brazil could still revert to its old boom-and-bust economic cycles if it gets hit with an unanticipated financial shock such as inflation, fresh infrastructure problems or something more severe — like a crash in the Chinese economy, which would hurt important Brazilian soy exports.

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