Daily Agenda: Brazil’s Government Teeters on the Brink

Calls for impeachment of Rousseff administration grow louder; Sherwin-Williams announces Valspar buy; IHS, Markit to merge; Marriott tops Anbang bid for Starwood.


Paulo Fridman

The political situation in Brazil, the world’s seventh-largest economy and South America’s largest by gross domestic product, continued to deteriorate over the weekend. A Friday decision by a member of Brazil’s supreme court that former President Luiz Inacio Lula da Silva cannot assume a cabinet post raised the possibility that charges against the Workers’ Party leader sought by Brazil’s attorney general may proceed. With more than two thirds of Brazil’s 205 million citizens now favoring an impeachment of President Dilma Rousseff, according to some polls, the likelihood of further protests, like those that saw millions take to the street two weekends ago, remain high. The increasing likelihood that Rousseff will be removed has sparked a modest recovery for Brazilian treasuries with an auction of short-term treasury notes on Friday resulting in the lowest implied yields since last summer. All three major credit ratings agencies downgraded the country’s debt in February.

Bank IPO in Hong Kong. On Friday, Bank of Tianjin Co. became the first company to stage a large-cap initial public offering in Hong Kong as Chinese equity markets continue to recover from the dramatic rout that began last summer. The company, a commercial lender named after its headquarters city in the northern mainland, raised nearly $950 million after pricing at the low end of the range proffered by underwriters.

KKR to acquire Airbus defense subsidiary. On Friday New York-based buyout giant KKR announced a deal to acquire a defense contractor division of Airbus Group for $1.2 billion. The purchase comes as Airbus moves to streamline its defense and space operations to refocus on its core aeronautics franchise. The business unit that KKR is buying is primarily focused on producing electronic components for rotary-winged aircraft.

Paint companies to merge. On Friday Sherwin-Williams announced an agreement to purchase Valspar Corp., based in Minneapolis, in a transaction valued at $9.3 billion that will result in the world’s largest paint company by market valuation. The merger will provide a significant international franchise to Cleveland’s Sherwin-Williams, which sells predominantly within the U.S. Analysts note that antitrust concerns may require final details of the merger to be adjusted.

Another terror attack in Turkey. Less than a week after a deadly explosion in Turkey’s capital of Ankara, for which Kurdish separatists acknowledged responsibility, a suicide bomber in Istanbul left five dead and more than 35 injured on Saturday. More than a dozen of the blast victims were identified as foreign nationals, in an attack that Turkish authorities have indicated may have been perpetrated by Islamic State-aligned extremists.

IHS to buy Markit. Englewood, Colorado–based financial data company IHS announced an agreement today to purchase U.K.-based Markit, best known for its widely followed benchmark purchasing-manager and credit-derivative indexes. The all-stock transaction will result in a majority ownership stake for IHS shareholders but will see the newly minted firm, valued at a roughly $13 billion market capitalization, shift its headquarters from Colorado to London.

Zhou warns on debt levels. During a speech yesterday before the China Development Forum in Beijing, People’s Bank of China governor Zhou Xiaochuan expressed concern over corporate-debt levels that have expanded rapidly in recent years. Estimates by the Organization for Economic Cooperation and Development place corporate debt levels in China at more than 150 percent of current GDP. Zhou identified more robust capital markets as a potential panacea for risky debt levels, with increased equity financing as an option for the private sector.

Presidential candidate in Peru faces scrutiny. Another candidate may be out in contested presidential election in Peru. On Friday, the Lima Centro 1 electoral board announced that it may disqualify frontrunner Keiko Fujimori from Peru’s presidential election. Fujimori, daughter of imprisoned former President Alberto Fujimori, would be the third major candidate disqualified for campaign strategies that violated rules designed to curb vote purchasing.

Marriott tops Chinese bid for Starwood. Marriott International increased its bid today for Stamford, Connecticut’s Starwood Hotels & Resorts Worldwide to a mixed cash-and-stock price of roughly $14 billion, topping a last minute proposal from a buying group led by Chinese insurer Anbang. The statement released by Marriott, headquartered in Bethesda, Maryland, indicated that Starwood leaders have tentatively accepted the proposal by amending the initial terms of acquisition first announced in November.