Sculpting Brazil’s debt profile

Daniel Gleizer joined the central bank as international director in early 1999 from Credit Suisse First Boston Garantia in São Paulo. Gleizer, who holds a doctorate in economics from Berkeley, has led a number of innovative debt operations in his short tenure at the central bank, such as a $2.15 billion Brady exchange in April designed to allow commercial banks to swap these bonds without taking an accounting charge. Mexico followed with an identical deal weeks later.

Gleizer, 41, is not too concerned about market upheavals since Brazil has raised enough fresh debt to meet maturing obligations. “We have enough for the 2001-2002 rollovers,” he says. The government plans to finance most of its budget deficit locally, reducing its activity on the international capital markets mainly to liability management exercises.

He says that 2004 will be a year of heavy amortizations and it is possible to design an operation to clean that profile. Liability management involves not just swaps but looking at new issues in a context of broad liability management. “This means [we must] avoid creating problems in the yield curve, selecting currencies and even plain vanilla issues are seen in this light,” he says.

There are always opportunities to carry out an exchange of Brady bonds, even during market turbulence. “In a crisis situations, Brady yields go up and global yields fall so there are opportunities for swaps,” he says. New SEC rules governing exchanges have become more flexible, reducing the amount of time a deal remains open. Gleizer says prior to this “We designed creative exchanges to reduce spreads, but we were still exposed to Treasury risk. Now that one-day exchanges are allowed, the difference between public and private exchanges has almost disappeared. You can give investors five hours to respond.”

Improving Communications
Gleizer also wants to improve communications with investors. He has announced to the market the expected maximum range for funding to “Give the market a certain amount of foresight so they know that Brazil will not overload the market and this encourages the market to support our paper.” This year Brazil said it would need to issue $5 billion to $7 billion and at least $500 million-equivalent in yen. Gleizer was helped by strong demand in the Samurai market, which remains open for Brazilian debt, while the dollar and euro markets are far less receptive (see page 20). He is particularly keen to broaden communications with the final holders of Brazilian debt, rather than relying so heavily on advice from investment banks. “I’d like listen to what the market thinks first-hand,” he says.

The central bank has adopted a more disciplined approach to awarding bond mandates to investment banks rather than use bank league table rankings as a guide. Gleizer says the central bank now considers a number of criteria when hiring investment banks, such as rotating mandates to prevent a few houses from perpetuating high league table rankings.

Competence in handling previous issues is clearly important – the central bank generates detailed reports on the performance of investment banks handling each bond the government has issued and it maintains a blacklist of banks judged to have botched a sale or let the government down.

The central bank also reviews each bank’s level of secondary market support, back-office efficiency and the quality of its book. Using these criteria, the central bank draws up a shortlist of bookrunners and then discusses fees, which are rarely a major issue. Gleizer says he is “tough but fair” in negotiating fees with the banks. “It’s no good trying to save on fees and making a terrible deal.”