With expected interest rates cut in the U.S., Brazilian companies should resume bond issuance
09/02/2024
Investment banks are preparing their first meetings with foreign investors to launch Brazilian companies’ issuances in the international debt market. Around six deals are expected for September, according to sources interviewed by Valor, including issuances by Raízen and banks. Subsea engineering company Oceânica, which is new to this type of transaction and tried to launch an offer in August, is also among possible candidates.
The market expects a busy season, starting Monday (2) after the return of vacations in the Northern Hemisphere and the Labor Day holiday in the U.S. In this scenario, some issuances may be brought forward not only to take advantage of more attractive rates but also to avoid proximity to the elections in the U.S., which could increase volatility.
The year has already surpassed 2023 in the amount raised with offers abroad. Brazilian companies issued $16.4 billion in bonds so far this year, compared to $16.1 billion last year, according to data from Bond Radar. People familiar with the matter say the expectation is that transactions will reach around $20 billion at the year-end.
The banks coordinating the operations have different readings of the impact of the election in the United States on the deals. Samy Podlubny, head of debt capital markets at UBS BB, says potential issuers are currently divided into two groups: those betting on September and those looking at January 2025 to avoid an issuance during the race for the White House. “Although they know this month’s window could be complicated, given the concentration of deals in a shorter time, several companies accelerated to issue before the [U.S.] elections,” he said.
Gustavo Siqueira, Morgan Stanley’s country head of fixed-income capital markets, says companies should try the September window. However, he does not expect an impact from the U.S. elections on the markets. “We see a more active month but some deals could be delayed to October or November,” he pointed out. According to the executive, the market is liquid and investors are seeking return, which opens up room for issuing companies. “We see a recovery after two weak years.”
From the beginning of August—when a steep drop in the stock market in Japan shook global markets—until now, the conditions for raising funds through bonds abroad have improved, according to Caio de Luca de Simões, head of debt capital markets at Bank of America in Brazil. “Treasuries became more stable and net interest rate spread returned to an appropriate level, after a period of strong volatility,” he said. “We are seeing one of the best cost scenarios for fundraising in the last two years.”
Pedro Frade, in charge of foreign debt at Itaú BBA, says rates contracted in the last month, both in Treasuries and Brazil risk. However, according to him, attention is focused not only on the next Fed meeting but also on the numbers about inflation and unemployment in the U.S., which could change the market’s mood and shrink the window for issuances. “Frequent issuers benefit from shorter windows,” the BBA executive points out, explaining that these deals are typically completed very quickly, making it possible to avoid market volatility.
He estimates a concentration of deals in the first half of the month. Given these uncertainties, the number of issuers that will be able to tap into the window is unknown. “Many companies will do their math to determine if the foreign market is the right path for them,” Mr. Frade says.
One of the points to be monitored by issuers in the next window is the high level of competition with other deals by companies from the same region. According to UBS BB projections, the number of offers from companies in Latin America could reach 15 in September. From Argentine companies alone, three deals are expected.
“Investors select not only [a deal] in Brazil but in Latin America as a whole, as the budget is usually the same,” Mr. Podlubny points out. “It doesn’t mean investors are short of funds but perhaps they don’t have time to dive deep into all deals and may choose to prioritize just a few. That could have an effect, for example, on the size of books.”
Miguel Diaz, debt market specialist at Santander Brasil, says the scenario is favorable given the current rates in the U.S. market, which have caught the attention of issuers. He expects up to eight issues between September and early October.
Matheus Licarião, head of debt capital markets at Santander Brazil, says investors’ agenda is very positive after Labor Day. He is working with two possible scenarios for the month. In the first scenario, as companies understand that the market has already priced the start of a reduction in interest rates, they choose to launch deals early this month—taking some distance from the U.S. elections. On the other hand, companies could choose to wait for the Fed’s monetary policy decision on September 18.
If optimism increases after that date, the space could be open to both frequent and new issuers, the executive says. “It’s a good timing for companies [to access the market]. The question is whether it will be a good or a very good window,” he points out.
When contacted, Raízen said it is always attentive to opportunities in the capital market, thanks to its “strategic positioning, quality of management, financial innovation,” and investment grade by three rating agencies. “It’s natural that the financial community keeps us on their radar and sees us as a candidate.” Oceânica did not respond to a request for comment.
*Por Fernanda Guimarães, Rita Azevedo — São Paulo
Source: Valor Inaternational