By Tatiana Bowser
SAO PAULO (Reuters) – Investment banks in Brazil are focusing on third-quarter debt issuance, an area that has seen strong activity even with higher interest rates.
Felipe Thut, director of Bradesco BBI, an investment bank controlled by Banco Bradesco SA, expects total domestic debt issuance to reach 430 billion reais ($83 billion) this year. Production between January and August increased by 30 percent compared to the same period last year. “The current level of debt is almost twice as high as in 2020, even with very high interest rates,” Thuth added.
Local fixed-income issues represented 96% of Brazil’s capital market activity in August, according to industry group Anbima, although the benchmark interest rate, the Selic, reached 13.75%, a 2020 low of 2%.
Equity issuance volume is down 53.5% in dollar terms this year and M&A deal volume is 31% lower than the same period a year ago, according to Refinitiv data. Uncertainties related to the presidential election affect the deals and also the volatility of international interest rates.
Large domestic inflows into fixed exchange portfolios are fueling demand for private debt, Thuat added. Fixed income funds had net inflows of 309 billion riyals ($59 billion) in the 18 months to July.
Another reason is that this year’s growth is higher than expected, which has led to the issuance of debt to expand companies, he said.
Tax-free bonds for infrastructure, real estate or agricultural businesses are low-cost and the first choice for companies, reaching close to 20 billion riyals in the first five months of 2022.
The executive believes the volume of equity issues, especially initial public offerings, could pick up again if Brazil’s central bank starts cutting interest rates. Brazil posted inflation last month as oil prices fell.
So far this year, there have been no IPOs in Brazil, but 18 consecutive offerings. Last year there were 78 transactions, including 46 IPOs, according to Refinitiv data. Tut Bradesco BBI will not make any changes in the group this year, as the bank expects a recovery in the equity capital markets in the medium term.
($1 = 5.2037 riels)