While Brazil’s equity markets might have surprised bankers on the downside in 2024, debt markets ended up showing more dynamism than many had expected.
Cristiano Guimarães, the group head of Corporate and Investment Banking at Itaú BBA, acknowledges the sluggishness of domestic equity markets over the past year, the lone exception being the $2.7 billion privatization via public equity offering of water and sanitation company Sabesp. Debt markets, in contrast, had a bumper year, with companies rushing to raise money through debentures and securitizations.
“With interest rates as high as they have been, what happened was a migration of money from equity markets to fixed income,” Guimarães points out. “Debt volumes broke records this year.”
For Itaú BBA, the whims of the market played in its favor, thanks to a diversified mix of products and strong presence in the local business community. “The lows of the equity market were more than compensated by DCM activity, which was the main driver of the business in the past year,” Guimarães says.
At least for the year to September 30, 2024, league tables reflected Itaú BBA’s strong performance. Dealogic, for instance, put the bank at the top of the domestic investment banking pack with a 16.2% market share, up from 12% in the same period of 2023. According to the data provider, the bank saw a 29.5% jump in net revenue compared to a year prior, closing the 12-month period with $114 million.
Guimarães estimates that debt capital markets volume could close 2024 at over R$500 billion, as spreads have narrowed and tax incentives made debentures and other vehicles more attractive for both issuers and investors. Itaú BBA tends to keep around half the value of the issues it helps place in the market on its balance sheet.
Interest rates were not the only factor in play, in his view. In 2023, local debt markets drew to a standstill in the first half due to the mammoth accounting scandal at retailers Americanas, and issuance activity slowed to a drip in the months following. Since then, however, it has been on a tear.
M&A deals, for their part, have remained stable, with mergers between listed company standing out in the market. In part, such deals were driven by depressed stock prices, which made it easier for companies to exchange participation in each other’s capital.
In 2025, Guimarães expects the market to follow similar trends. DCM activity may not repeat the outstanding performance of 2024, as the repressed flow of issuances of 2023 won’t any longer be a contributing factor, but all expectations are for a brisk pace to persist.
Equity markets, meanwhile, are likely to remain subdued amid stubbornly high interest rates. Economists have revised upwards their projections for Brazil’s interest rates in 2025, citing worsening inflation expectations, a weaker currency and continued concerns over the fiscal outlook of Latin America’s largest economy, with consensus forecasts for rates peaking at 15.5% in June. Itau raised its Selic forecast to 15.75% by mid-year, up from 15%, with expectations it will remain at that level for the remainder of the year.