No Hope for Brazil Corporate Bond Secondary

Brazilian executives see few, if any, encouraging signs that an active secondary market for corporate bonds could develop in coming years. Alfredo Setubal, EVP and head of IR at Itau Holding Financeira says funds specializing in local corporate bonds are a very low priority for his institution. “We are not pushing growth for this product,” Setubal tells LatinFinance. “The problem is that [debentures and other corporate credit instruments] are very difficult to price,” adds the banker, who is in charge of all of the institution’s asset management arms. Setubal notes that funds have to mark on a daily basis the value of holdings and also establish a value for illiquid instruments, which is challenging. Itau has some BRL4bn in assets dedicated to corporate credit securities, says Setubal. As for having corporate debt instruments trade on an exchange, Carlos Kawall, CFO of BM&FBovespa says he is cool on the idea. “The possibility of having large volumes is very low,” says the official. “[In Brazil] there is no real practice of bookbuilding since banks offer firm underwritings [when agreeing to a deal],” he adds. Kawall notes that there has also been a dearth of issuance as investors, and as a result, issuers, have migrated to short-term instruments like promissory notes, CP and bank notes that pay higher rates for limited duration. Analysts have long seen lack of efficient secondary markets as a leading impediment to development in local fixed income markets.