Brazil made its much-awaited inaugural sale of sustainable bonds in the international market on Monday, raising $2 billion in a deal that some investors thought was overpriced.
The sovereign sold the 2031 notes to yield 6.5%, which is the lowest paid by Brazil in almost a decade, said the country’s finance minister, Fernando Haddad.
The deal’s implicit spread is about 180 basis points over US Treasuries, which is comparable to the level paid by investment-grade sovereign issuers, such as Mexico, he told reporters. Brazil is rated BB- by S&P Global, while Mexico is rated BBB.
“Brazil is a country that has credibility of an investment grade country,” Haddad said.
The sale was the latest in a series of deals by Latin American nations in the last week, with Colombia, Costa Rica and Uruguay printing sustainable and regular sovereign bonds.
The issuance was well timed and the size of the order book reflected “strong investor appetite,” said Zulfi Ali, a fixed-income portfolio manager at PGIM, the investment arm of Prudential.
The deal’s pricing put off some investors, however.
“Although finally priced at 6.5%, 20 basis points higher yield than existing Brazilian bonds, I do not find the offer attractive,” Edgardo Sternberg, an emerging markets portfolio manager at Boston-based asset manager Loomis Sayles, told LatinFinance. “Nevertheless, judging by the size of the initial book, investors seemed to like it.”
‘DEMAND FELL’
The sovereign opened the deal at around 6.8%, before bringing it down to 6.5%, according to a sell-side source.
Orders peaked at $5.8 billion and ended up just above $4 billion, according to Laszlo Lueska, a partner and portfolio manager at São Paulo-based investment firm Octante Capital.
“When they announced the final guidance, the demand fell and they issued $2 billion, which is the limit they could issue with a $4 billion book,” Lueska said.
Bruno Rovai, sovereign strategist at Macquarie Asset Management, also considered the deal’s pricing was unattractive. “In addition, the maturity profile falls around the most expensive sector of the Brazilian USD bond curve,” he said.
Itaú BBA, JPMorgan and Santander were joint bookrunners on the bond sale, the sell-side source said.
INVESTOR SUPPORT
“We were expecting Brazil to come to the market with their inaugural ESG bond and anticipated that demand would be high as ESG-oriented investors would look to support such issuance,” said Rovai.
“Fundamentally, we believe Brazil remains a strong credit within its credit rating bucket, and we have exposure through local currency bonds,” he added.
The Brazilian finance ministry said 25% of the bonds were picked up by local investors and foreign investors purchased the remainder. It gave a similar distribution for the use of proceeds, with 25% going to refinancing and the remainder to new expenditure.
Those outlays will include eligible green and social projects under the sustainable bond framework that Brazil published in September, according to prospectus filed in the SEC’s website.
More Sustainable Finance & Investment News
FREE TO READ THANKS TO
