ISA Energia Brasil is the latest power company to issue infrastructure debentures in Brazil, as the asset class and so-called incentivized debentures gain more attention this year.
The issuance of infrastructure debentures surged 18% in the first nine months of the year from the year-earlier period, according to figures released by Anbima, Brazil’s capital markets association, on Monday.
ISA Energia, a subsidiary of Colombian energy group ISA, also said Monday it intends to price BRL2 billion ($370 million) in so-called incentivized debentures, which grant fiscal incentives to investors.
It will sell 12-year notes at 6.66% and 15-year notes at 6.64%, and use the proceeds to expand transmission lines between the states of Minas Gerais and Bahia.
INCENTIVES MATTER
The infrastructure bonds are attractive for retail investors, as they don’t have to pay income taxes on their earnings. The funds also enjoy an income tax rebate.
This is fueling growth in the sale of infrastructure bonds, which grew much faster than the 0.5% of the overall fixed-income market, according to Anbima.
Incentivized debentures accounted for 36% of overall debentures issued in the first nine months of this year, up from 30% during the same period last year — 16% in 2022 and 24% in 2023. The government has tried to scrap the fiscal incentives for infrastructure bonds, but it has not managed to get the relevant decree approved in Congress.
TROUBLE AHEAD?
The outlook for next year is still uncertain in the run-up to general elections in October against a background of continued polarization.
“I have been talking to issuers who may tap the market early in order to avoid the expected volatility next year,” Cesar Mindof, director of Anbima, said during a press conference. “Those who can and think that it makes sense to anticipate before any potential volatility are choosing this alternative.”
Even though interest rates are expected to decline, Mindof said they will remain high, adding that issuers are likely to prefer the fixed-income market.
“All macro fundamentals do not converge toward a more positive scenario for equity. High interest rates, an electoral year and low foreign investors activity in Brazil have led to a record time without an IPO in Brazil and a low level of follow-ons,” he said.
The latest initial public offering dates from 2021, and the amount raised in follow-on offerings fell 80% to BRL4.2 billion this year.
Meanwhile, cross-border issuances have increased to $29.2 billion in the first nine months of this year from $17.6 billion a year earlier, Anbima said.