Category: Bonds

With EM local currency funds consistently bucking the trend of outflows seen in other asset classes and the Brazilian government’s IOF tax pushing investors to the offshore local currency curve, hopes have been running high that a true reopening of the global BRL market is just around the corner. Another selloff Friday on renewed fears over a Greek default has no doubt dampened such expectations, but such deals have started to trickle out, and bankers still think there is room for this asset to grow. “We have seen some level of risk aversion as a consequence of global volatility and that will make investors choosier about the issuer they may accept, but they will still look at global BRL issues as long as the currency remains strong versus the dollar and interest rates remain high on a relative basis in Brazil,” says Gustavo Ferarro, head of LatAm debt capital markets at Barclays. Last week’s BRL1.1bn 5-year from Brasil Telecom was arguably a good sign. The BRL2bn book may have been smaller than a BRL400m issue from McDonald’s franchisee Arcos Dorados earlier this year, but the deal printed with a 9.875% yield despite some resistance to sub-10% pricing. Its comparatively large size also provided the liquidity that key institutional accounts seek in this uncertain environment. “There is appetite for BRL globals, but it is going to come down to issuance size. If the market begins to stabilize, there will be more demand for these types of instruments because of the IOF tax and growth of local currency funds,” says Douglas Chen, managing director, fixed-income, at Itau. Secondary yields of around 10% on Arcos Dorados and Coelba’s BRL bonds are clearly attractive at a time when US Treasury yields are being driven lower by a flight to safety bid. Further, Brasil Telecom’s new 5-year was holding up relatively well despite the selloff Friday and trading at around 9.88%-9.78%.The increasing number of outstanding bonds should also help with price discovery. “There are more ou

Brazil’s Construtora Norberto Odebrecht was heard considering a 30-year bond as it wrapped up fixed-investor meetings last week with Credit Suisse, Deutsche Bank and Goldman Sachs. The Baa3/BBB minus issuer is keeping an eye on the market and expects to issue as soon as this week, market conditions permitting. “There is plenty of interest but everything is about yield [and timing] at this stage,” says a person familiar with the transaction. Size has yet to be determined. Brazil’s Braskem was the last corporate to issue a 30-year in July, when it priced a bond at 98.479 with a 7.125% coupon to yield 7.25% or 308.1bp over UST. “Issuing a 30-year may be difficult in the current market as investors are staying closer to more liquid 5 and 10-year bonds,” says a senior portfolio manager following the name. The investor adds with 30-year USTs near historical lows it makes sense from the issuer’s perspective to lock in longer-term financing at lower rates. Odebrecht last came to market in March 2011 when it issued a $500m bond via Bank of America Merrill Lynch and HSBC.

Telemar’s Brasil Telecom (BT) priced a BRL1.1bn ($662m) 5-year bond Thursday after building a book that reached BRL2bn in size. The telecom was heard seeing some resistance below the 10% whispers circulated in the market, but it nevertheless managed to squeeze guidance to 9.875% area before pricing at 99.516 with a coupon of 9.75% yield of 9.875%. The result may bode well for an asset class that bankers says holds much promise if, like BT, the borrower can issue in size and provide the liquidity investors seek in this uncertain environment. Accounts were largely comping against Companhia de Eletricidade do Estado da Bahia (Coelba)’s BRL 400m 2016 bond and McDonalds franchisee Arcos Dorados’s BRL400m 5-year, which were respectively at around 10.06% and 10%. Banco Safra, the most recent borrower to tap BRL globals, also had its bond being quoted around 10.20% yield. “Around the 10% area is in the right zip code,” says an investor looking at the name. The deal was brought to market via Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC, Itau and Morgan Stanley. A subsidiary of Telemar Norte Leste S.A. (Baa2/BBB minus/BBB), the company is rated Baa2/BBB. Telemar last tapped the overseas market in December 2010, when it pulled the trigger on a EUR750m 2017 bond that was priced at 98.828 with a 5.125% coupon to yield 5.33%. On that occasion HSBC, Santander, BB Securities and Espirito Santo Investment Bank acted as leads. The operator of the Oi brand also sold $1bn in 2020 bonds in September 2010. Telemar has not issued an international bond through the Brasil Telecom unit since acquiring it in 2008. The bonds will be governed under New York law and listed on the Irish Stock Exchange.