Advent International, the private equity firm, has acquired 30% of CETIP S.A. – Balcao Organizado de Ativos e Derivativos, the largest central depository for private fixed-income securities and over-the-counter (OTC) derivatives in Latin America.
The value of Advent’s investment was approximately RD360 million (USD170.6 million), subject to an earn-out achievement and other conditions, making it the largest private equity transaction in Brazil this year. The investment has been approved by the Brazilian regulatory authorities.
CETIP was created jointly by the Central Bank of Brazil and numerous market participants in March 1986. The company remained a mutual-owned nonprofit organization until it was demutualized in June 2008.
Today CETIP offers registration, custody, trading and collateral management to 8,200 customers, including banks, brokerage houses, securities dealers, leasing companies, insurance companies, investment funds and pension funds.
It is one of Brazil’s market leaders in custody and settlement activities, with RD2.6 trillion (USD1.1 trillion) assets under custody, an average daily trading volume of over RD50 billion and an average settlement volume of RD30 billion.
The company is also the biggest custodian of OTC derivatives in Brazil, with registered notional value of RD502 billion. Brazilian regulations require that all fixed-income and OTC derivates be registered with a central custodian.
“We are confident that Advent can help CETIP develop to its full potential and aid in the development of the Brazilian capital markets,” said Martin Escobari, a Managing Director in Advent International’s Sao Paulo office. Mr. Escobari led the investment in CETIP and will serve as Vice President of its board of directors. “Advent can leverage its deep knowledge of financial services and local presence to help CETIP strengthen its management processes, new product development and build deeper relationships with its customers.”
Growth trends for the fixed-income and OTC derivatives markets in Brazil remain positive. Most Brazilian companies operate with an under-leveraged capital structure. The average net debt-to-EBITDA ratio of approximately 0.7x in 2008 highlights the potential for increased issuance of corporate fixed-income securities in the medium term. “On a global scale, Brazil is the only large market that is still underleveraged and is likely to see higher-than-average credit growth in the near future,” Mr. Escobari said.
Additionally, the OTC derivatives market in Brazil is underdeveloped relative to other international markets, comprising mainly standardized exchange-traded futures and options contracts. In more developed markets, the volume of OTC derivatives exceeds that of exchange-traded contracts by a wide margin.
CETIP is Advent’s third recent investment in Brazil and its 10th investment in the Latin American financial services sector, underscoring its depth of expertise in this area. In September 2008, Advent acquired Frango Assado, Brazil’s largest highway restaurant chain, and Quero-Quero, a home-improvement retailer, credit-card issuer and consumer-finance company in southern Brazil.
Goldman, Sachs & Co. and Barbosa, Mussnich & Aragao Advogados acted as financial and legal advisor, respectively, to Advent.
L.D & G.T