Banks boost allocations, eyeing secondary markets, as demand nearly doubles supply

02/26/2024

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Renato Otranto — Foto: Gabriel Reis/Valor

In the wake of the rally in tax-exempt debentures caused by the National Monetary Council’s restrictions on the issuance of real estate and agribusiness credit certificates and bills (CRIs, CRAs, LCIs, LCAs, and LIGs), another race has begun. To take advantage of the favorable window, with high demand and low rates, companies are bringing forward their funding, and there are already cases of companies that were going to launch ordinary debentures, for example, and have switched to incentivized debentures. In just the first 20 days of February, Renato Otranto, head of structuring at Daycoval Bank, calculates that the volume of operations, including both types of securities, has already surpassed the R$20.7 billion of January, periods that are usually seasonally weaker, and predicts that the month could close with R$30 billion in issues.

Compared to 2023, the increase is even more significant since, in the first days of the year, the market was in the throes of the Americanas debacle—the Brazilian retailer that filed for court-supervised reorganization in 2023. January 2023 still saw transactions totaling R$26.6 billion, but in February, the volume was restricted to R$16 billion. “ Investors are buying what they see in front of them in the expectation that the spreads [the difference between the rates paid for the bonds and the yields on equivalent National Treasury Notes Series B (NTN-Bs), which are the benchmark in the incentivized market] will fall further,” said Mr. Otranto.

He recounts the case of a frequent issuer who, three weeks ago, was formatting an ordinary debenture operation. Now, he says, he’s structuring it via Law 12,431, which created incentivized debentures. “Those who really need it are moving. Those who don’t have an emergency situation are assessing whether to go further.”

Two situations in recent days have been cited by asset managers as representative of the moment. One involves PetroRio, which has just issued R$2 billion in debentures in two series, of five and ten years, with rates of 11.1% and IPCA (Brazil’s primary measure of inflation) plus 6.5%, respectively. “The company didn’t need money now; it has a large cash position, it was a more opportunistic operation,” said Leonardo Ono, private credit manager at Legacy Capital. The other one concerns Aegea Saneamento e Participações, whose affiliates Águas do Rio 1 and 4 are about to issue R$3.4 billion in two series (10 and 18 years).

Ricardo Ara, co-manager of Legacy, said that after the company’s successful R$5.5 billion fundraising in August 2023—which caused a furor after it was revealed that almost R$1 billion had gone to the coordinating banks’ commission, a level rarely seen—it was uncertain whether there would be demand for a new issue. To guarantee the funds, the Brazilian Development Bank (BNDES) had secured a loan for the company. “But with strong demand for incentivized debentures, Aegea preferred to go to the market.” Market sources, however, say that this time, Aegea has renegotiated the commission with the banks to lower levels.

Cemig is on the roadshow for a R$2 billion issue in two series, one at the Interbank Certificate of Deposit (CDI) rate plus 1.22% (ordinary, five years) and the other at the NTN-B plus 0.45% (incentivized, 10 years). According to Mr. Otranto, public companies with the highest credit rating (“AAA”) were issuing at 0.5% above the NTN-B before the rally. There is also CCR— Brazilian infrastructure, transportation, and services concession company, one of the country’s main highway management companies—, which will raise R$1.25 billion through 18-year notes paying NTN-B plus 1.5%; and Águas do Sertão (R$1.1 billion through 19-year notes paying NTN-B plus 2.65%).

Despite being in the infrastructure sector, Sabesp has announced a R$2.5 billion offering in ordinary debentures, which are experiencing high demand, notes Marcos Garcia, superintendent of capital markets at Banco BV. However, the market’s primary focus remains on incentivized debentures. Mr. Garcia notes that the spread on ordinary debentures has decreased by 30 to 40 basis points for AAA-rated securities.

“The market has been shaken up. The high demand for tax-exempt corporate debt and from institutional investors has piqued the interest of companies,” said Mr. Garcia. According to him, it started to make sense for issuers who were waiting for a favorable window or for the new regulations on infrastructure debentures in January. “Demand for the obvious names has increased. The impact on incentivized and simple debentures was immediate,” said Thiago Lobato, head of capital markets at Inter DTVM.

At the end of January, the Autopista Planalto Sul concessionaire, a part of the Arteris group, issued R$650 million in debentures in two series, one incentivized and the other ordinary, with terms of seven and four years, respectively. The offer, therefore, hit the market before the rally that compressed spreads by between 0.3 and 0.8 percentage points and came out at IPCA plus 6.88% per year and CDI plus 2.55%, respectively. Demand for the CDI series was 1.5 times the value of the issue and for IPCA, 1.8 times, according to Mr. Otranto.

Águas do Sertão’s offering had also already been priced and, according to an asset manager interviewed by Valor, with the high demand, the acceptance of offerings was discretionary, which is unusual in the market. “The coordinator gave preference to requests from partner institutions,” the source commented. Additionally, with the rush for the papers, in the very first days of trading, the spread on the debenture fell from 265 basis points to 190.

Reports among asset managers also indicate that the coordinating banks are increasing the amount they absorb. In this way, they guarantee gains in the secondary market, which is also very active. “Retail banks are able to stock up on paper and take advantage of the rate,” Mr. Otranto explained. The treasuries of these institutions are already recording gains on paper they had placed in their portfolios, especially between October and December, when there wasn’t enough demand for operations after successive large offers, recalls Mr. Ono from Legacy. “The big banks are aware that this is a sustained demand.”

Felipe Wilberg, head of fixed income and structured products at Itaú BBA, notes that a significant number of incentive bonds are entering the market. However, due to the scarcity of bills and credit certificates, individual demand will also be high. “On the other hand, the institutional debenture market, which is euphoric because of incoming money, faces a smaller supply and a shortage of bonds, compressing spreads. Additionally, banks and funds are showing an appetite for these allocations in the absence of many new bonds. There will come the point when banks don’t buy any more if the rate is too low, and then the market will start to balance out.”

Data from the Brazilian Association of Financial and Capital Market Entities (ANBIMA) indicates that incentivized issues totaled R$14.2 billion up to July and surged from August to December, reaching R$53.7 billion. In contrast, ordinary issues totaled R$76.5 billion and R$92.1 billion, respectively. In October, transactions with tax-exempt papers (R$16.7 billion) exceeded those with ordinary securities (R$12.6 billion) for the first time in the year, with intermediaries and other participants subscribing to 59%. In November, they accounted for 41.2%, and in December, 65.6%.

The impact of the National Monetary Council’s (CMN) restrictions may already be evident this month. According to the Securities and Exchange Commission of Brazil (CVM), in January, there were 12 registered offerings of agribusiness receivables certificates (CRA) totaling R$2.2 billion, and in February, up to last Thursday (22), there were 10, totaling R$1.1 billion, indicating a dominance of smaller projects confined to the sector. For real estate receivables certificates (CRIs), from 43 offerings last month totaling R$3.6 billion, the volume decreased to 22 for a total of R$2.1 billion.

Mr. Garcia, from BV, explains that before the CMN’s restrictions on February 2, two factors had already been influencing the market, albeit not as acutely: the taxation of exclusive/restricted closed funds, which will start paying quotas this year, but, in the third quarter of 2023, when discussions in Congress began to advance, stopped receiving new money; and the remodeling of infrastructure debentures, whose tax incentive will shift to the issuer, potentially diverting resources from the incentivized ones.

Eduardo Correa, vice president of solutions at Ártica, remarks that at this stage, frequent issuers are more common, as they can quickly adapt. In the sector where Ártica primarily operates, medium-sized companies, programs have accelerated, and in the coming weeks, the company plans to bring four offers to market totaling R$200 million. Mr. Lobato, from Inter DTVM, mentions that the institution is revising the rates of operations already in the pipeline and anticipates that newcomers or less frequent issuers will benefit in a subsequent phase.

Mr. Wilberg, from Itaú BBA, believes that this rally is unhealthy. “We’re cautiously optimistic about individual behavior but a bit concerned about the euphoria, which is not beneficial. A balanced market is preferable.”

*Por Liane Thedim — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/