Brazilian investment banks are focusing on debt issuance in the third quarter, an area that has remained active despite higher interest rates.
According to Felipe Thut, director at Bradesco BBI, the investment bank controlled by Banco Bradesco SA (BBDC4.SA), total local debt issuance this year will be around 430 billion reais ($83 billion). Between January and August of this year, issuance increased by 30% compared to the same period last year. “The current volume of reais debt issued is roughly double that of 2020, even with much higher interest rates than we had at the time,” Thut added.
According to industry group Anbima, local fixed income issues accounted for 96% of capital market activity in Brazil in August, despite the benchmark interest rate Selic reaching 13.75%, up from a record low of 2% in 2020.
According to Refinitiv data, equity issuance volume is down 53.5% in dollars this year, and M&A deal volume is down 31% from the same period last year. Uncertainties surrounding the presidential election, as well as volatility in global interest rates, are weighing on deals.
Large local inflows into fixed-income portfolios are fueling demand for private debt, according to Thut. In the 18 months to July, fixed-income funds received net inflows of 309 billion reais ($59 billion).
Another factor is this year’s higher-than-expected growth, which has caused companies to issue debt to fund expansion, according to Thut.
Tax-exempt bonds for infrastructure, real estate, or agriculture businesses have lower costs and have been the first choice for companies, with the first five months of 2022 approaching 20 billion reais.
The executive believes that the volume of equity issues, particularly initial public offerings, will increase once it is clear when the Brazilian central bank will begin to lower interest rates. Last month, Brazil experienced deflation as fuel prices fell. more info
So far this year, there have been no IPOs in Brazil, but there have been 18 follow-on offerings. According to Refinitiv data, there were 78 transactions last year, including 46 IPOs. Thut stated that Bradesco BBI will not make any changes to its team this year because the bank anticipates a medium-term recovery in equity capital markets.
($1 = 5.2037 reais)