Category: Bonds

Now that Brazil’s government has better defined the infrastructure debenture class, bankers and issuers expect the first issuance this month and see the asset as a pillar in transforming the country’s domestic bond market to one eventually featuring broader investor participation, longer maturities and secondary trading. With foreign investors – beneficiaries of an IOF tax exemption – difficult to lure, local buyers are the key in the early development of the asset class. “Infrastructure bonds should extend tenors, most of these bonds go beyond the 10-year mark, and that’s a game changer. This will be the big stories in the next few years,” says Juan Pablo de Mollein, managing director at S&P. CCR’s AutoBan unit could be the first widely marketed infrastructure debenture. The road operator is targeting a BRL950m ($470m) 2017 bond, with bookbuilding expected to wrap up by the middle of the month. For now, issuers are targeting the domestic buyside. “There is huge demand from individuals. With lower interest rates, you will have more investors looking for alternatives. On the other hand, demand from foreigners is not clear yet. There is great general interest, but as most of the projects will be BRL-linked there will be concern among international investors,” says Rodrigo Fittipaldi, a DCM banker at BNP Paribas, which is currently preparing transactions using the format. “We spoke to foreign investors. They were worried about the secondary market and who was buying the asset in Brazil” says Paulo Fernandes, CFO of Rodovias do Tiete, which is curently working on a revival of the deal it first attempted in May and speaking to the domestic buyside. He notes the recent government clarification regarding defining use of proceeds and establishing that the bonds can cover existing project debt has helped, though foreign buyers are still worried about a lack of secondary trading activity. The road operator is seeking BRL700m, at 12-15 years maturity and a yield of up to 8.5%,

Banco ABC Brasil emerged Thursday with a $100m retap of its Tier 2 2020 bonds, a move that shows it is in solid standing with investors at a time when several members of its peer group are struggling. The mid-sized bank drew $650m in orders and brings the outstanding size of the bond to $400m. The 7.875% subordinated bonds reopened at 106.50, at the high end of 106.00-106.50 guidance revised from 105.0-area, to yield 6.756% or UST+572.1bp. The bonds were quoted at 6.65% pre-announcement. “ABC is a quality operation offering good yield from an issuer on the investment grade borderline versus other banks and similarly rated entities,” says a New York-based EM investor. A ratings downgrade of Banco BVA to Caa1from B2 this week, and the liquidation of Banco Cruzeiro do Sul are recent examples of the medium-sized Brazilian banks’ struggles. About 80 accounts were heard paritcipating. Proceeds are destined to increase the issuer’s capital base and for general corporate purposes. HSBC, Itau and Santander managed the transaction, rated Ba1, below the bank’s Baa3/BBB minus senior rating.

Brazilian Airline Azul has completed the sale of BRL182m ($90m) in domestic bonds, according to Anbima. A BRL100m 2015 tranche pays 127% of the DI and a BRL82m 2017 tranche pays the DI+4.0%. Bradesco managed the 2015 portion and Itau the 2017, both issued under the rule 476 restricted format.

Mills Estruturas e Servicos de Engenharia has finalized the sale of BRL270m ($133m) in Brazil’s domestic bond market, according to Anbima. The engineering firm offered a 2017 BRL161m tranche paying the DI+0.88%, coming in under a DI+1.0% ceiling, and a 2020 BRL109m inflation-linked tranche paying 5.50%, coming in under a 5.90% ceiling. The first amortizes in equal parts in the final two years and the second in equal parts in each of the final three. Mills plans to use proceeds to finance investments, repay debt and for working capital. Itau managed the transaction, done under the rule 476 restricted format.