After a weak start of the year, syndicated loans have once again become an option for well-rated Brazilian companies to raise funds abroad.
In the beginning of the year, with the bond market heated, companies preferred to issue securities, with which they could raise funds for a longer term. But as political uncertainty grew, with President Michel Temer being directly cited as involved in corruption in the testimonies of JBS executives, costs on the bond market rose a little and foreign bank loans have become attractive again.
Vale raised $2 billion in early June with a five-year credit facility. The mining company got it from a syndicate comprising 18 banks. In May, sugar and ethanol producer Biosev also rolled over a $318 million facility that was to expire in 2018 and extended it through 2020.
In the first quarter, syndicated loans to Brazilian companies amounted to $50 million, but with the new transactions the market expectation is to top the total of about $4 billion posted last year.
ING participated this year of the extension of a syndicated loan to Ascenty, an operator of data centers, in the first quarter. Last year, the company raised $155 million from a group of banks, and this year it managed to increase that facility to $190 million, maturing in five years, with two banks joining the loan. Proceeds will be raised for the construction of data centers in Brazil.
The bank also arranged in May the extension of a syndicated loan to another Brazilian company in the value of $200 million for three years. In general, terms of syndicated loans are shorter than those of bond issues and similar to those in Brazil. “The difference is that the banking market in Brazil is too concentrated. If the company needs to raise more than $1 billion, it may be cheaper to do the transaction abroad, where a higher number of banks can participate. But this access is restricted to a small universe of blue-chip companies,” says Ignacio Lorenzo, head of syndicated loans and financing for acquisitions at Santander Brasil.
When Brazil lost its investment-grade rating, traditional banks that used to participate in such type of loan reduced the credit limit to Brazil. In addition, the recession of the last two years reduced the need of Brazilian companies to raise new funds, and they are seeking only to roll over their existing debts. To have an idea of the drop in loans on this market, in 2015 syndicated loans to Brazilian companies reached $15 billion.
Mr. Canineu says banks have been seeking to reduce the so-called Brazil risk. The focus now has been on loans to subsidiaries of multinationals present in the country, Brazilian companies with operations abroad or exporters, or those in non-cyclical businesses, such as paper and pulp and food and beverages, which are less affected by the crisis.
Outside of these sectors, banks are more demanding regarding collateral. In the case of companies being investigated, but without operating problems, like meat processor JBS, banks have only been renewing the facilities and have included creditor-protection clauses that accelerate the debt, pegged to leniency agreements. “There are no new loans to these companies, at most the rollover of existing lines. But these transactions have been bilateral,” one executive says.
With high liquidity in the global financial market and interest rates that, despite rising, are still lower than in Brazil, fundraising abroad is still attractive for some Brazilian companies, even considering the cost of currency hedge.
In general, syndicated loans are contracts at a cost of Libor, the London interbank rate, which is below 2%, plus a spread, which depends on the country and company risk. “In general, if you do a three-year swap transaction of Libor to reais it still is cheaper than the [benchmark short-term rate] CDI,” says Mr. Canineu, with ING.
Source: Valor Econômico