Buyside Hears More Noise around Global BRL

Ever since split-rated McDonald’s franchise Arcos Dorados generated a BRL3.6bn book on its successful BRL400m ($265m) 5-year global bond (Ba2/BBB minus), hopes of more such trades have run high. But talk of imminent BRL globals has grown even louder among the buyside in recent weeks, with names like lender Bradesco and steelmaker Usiminas being cited as possible candidates. This may all be speculation at this stage, as Bradesco, for one, is thought to still be in a blackout period, though earnings are due shortly. Bankers have certainly been hoping to replicate the success of Arcos Dorados as they pitch borrowers on the idea. And it is hardly surprising that Bradesco’s name comes up in conversation. After all, it was forced to abandon a global BRL bond late last year while watching rival Itau print its own BRL500m 5-year at 10.5%.“They will want to redeem themselves. It is more question of when as opposed to if,” says one banker. But Bradesco is not the only financial institution thought to be eyeing this product. “Banco do Brasil and BNDES , all these guys are looking at BRL,” says one banker. With both the euro and the USD under pressure, bankers think investors are more open to taking on local currency risk, especially in light of the comparatively higher yields. From the borrower’s perspective, pricing also remains attractive against where they can price over CDI, say some local bankers. Yet while the assets class continues to be one of the most popular destinations for foreign inflows, borrowers should be careful about rushing into what is still a shallow market. “You need to mark sure the coast is clear from competing supply and that the tone is right,” said one banker.