More favorable scenario in second half and end of credit crisis in private sector drive movement
08/08/2023
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Samer Serhan — Foto: Ana Paula Paiva/Valor
In a more favorable scenario in this second half, with the beginning of the fall in the Selic basic interest rate and after the worst moment of the credit crisis in the private sector, companies not listed on exchange B3 are returning to the capital market, or debuting in it, with the launch of commercial notes, debentures, certificates of real-estate receivables (CRI) and agribusiness receivables certificates (CRA).
These are the so-called issuers in governance transition, which commit, when issuing securities, to adopt measures to increase their transparency, such as the presentation of audited quarterly earning reports. “In our pipeline there is almost R$2 billion to bring to market by the end of the year,” says Rodrigo Nery, partner at Aeté Capital.
Jive Investments – Brazil’s largest distressed assets manager, which has two funds (BossaNova and Soul Previdência) focused on private and conventional structured credit– will have R$250 million in issuances in the next 90 days, with R$135 million in the governance transition segment, after a first half without operations in this range.
BossaNova has a net worth of R$850 million and eight issuers in transition out of a total of 20, which corresponds to R$265 million. In Soul Previdência, with a R$70 million net worth, there are four that add up to R$15 million. Among the cases of transition already completed is that of Orizon, whose first fundraising was in this category and which launched an IPO in 2021.
“Those are the companies that interest me the most. The rate is higher because they embed higher initial risk. At the same time, I direct governance and, in the future, they come out of the most expensive range,” says Samer Serhan, partner at Jive. Jive’s focus is commercial notes, which since 2021 can be issued by limited companies.
August is expected to be a bustling month in the private credit market. After the crisis sparked by the Americanas and Light cases, the feeling is that the turbulence is behind us, according to asset managers and investment banks. In just the first four days of the month, R$3.6 billion in transactions were registered with the Brazilian Securities and Exchange Commission (CVM). The largest are from Coelba, in the amount of R$1.2 billion, and Rede D’Or, with R$1 billion.
On Monday, in one of the largest offerings of the year, Aegea raised R$5.54 billion through incentivized debentures. Sources say the demand surpassed R$9.5 billion, leading to a reduction in the bond spreads. The company intends to use the funds for the Águas do Rio operation, which won Cedae’s privatization auction in 2021.
At Aegea, strong demand led to a reduction in rates. The first series, of 10 and a half years, came out at IPCA + 6.9%. The second, of 18 and a half years, at IPCA + 7.2%. The initial indications were IPCA + 8.1% and IPCA + 9.3%, respectively.
Eletrobras announced on Monday that it intends to hire banks to structure the issuance of, initially, R$7 billion in debentures of the company, R$ 3.5 billion in commercial notes of Furnas and R$ 250 million in debentures of Eletrosul.
“With the money flowing back into the funds, debenture operations are picking up again, some even with demand exceeding supply,” said Samy Podlubny, head of debt at UBS BB Investment Bank. “The pipeline for operations is substantial for the coming months.”
After months with more outflows than inflows, investment funds resumed attracting funds in July. In a sample of 200 funds that specifically allocated to private credit and monitored by the asset manager Riza Asset, the flow turned positive by R$1 billion in the last month. “With the influx turning around, it is expected that the primary market will return to normal,” says Mr. Renato Jerusalmi, a manager at Riza.
The resurgence of offerings comes amid more optimistic prospects for the companies. With the beginning of the Selic rate-drop cycle, companies are expected to see an improvement in their financial situation due to the reduced cost of their debts. “With the drop in interest rates priced by the market, a relief in the balance sheets and the rebalancing of the companies’ payment capacity is expected,” said Mr. Alexandre Muller, a partner at JGP.
In July, debenture issuances reached R$12 billion, according to a survey by JGP that includes operations concluded until July 26. The volume was lower than in June when operations reached R$25.7 billion, but still higher than the average from January to May, which was R$9.45 billion.
In the secondary market, there was also improvement in July, although at different levels depending on each company’s credit quality. In Idex-CDI, an index created by JGP that tracks a portfolio of more liquid debentures, spreads decreased from 2.75% at the end of June to 2.65% on July 26.
“Considering the market average, it is possible to say that the scenario is improving, but it bears keeping in mind that there is still much dispersion, meaning that some debentures still have wide spreads,” said Mr. Muller. “Within the index, 18% of the bonds have spreads above 3.5%.”
On the investor’s side, the demand for infrastructure debentures has been increasing, according to Mr. Pierre Jadoul, private credit manager at ARX Investimentos. “With the process of the Selic drop, investors are more interested in an outflow of CDI-linked securities. They are seeking more bonds linked to the Broad Consumer Price Index (IPCA-linked bonds), specifically longer-term ones,” he said.
*Por Liane Thedim, Rita Azevedo — Rio de Janeiro, São Paulo
Source: Valor International