Brazilian DCM Continues Strong Pace

A BRL600m ($297m) sale from BR Properties has capped off a week of large transactions in Brazil’s local bond market, which underscores continued record issuance volume while other LatAm markets slow. The driver remains the same: investors continue to show demand for corporate debentures as government bond yields become less attractive. “Many investors are looking at corporate credit, as the lowering of the Selic means they must search for yield outside of government bonds,” Debora Jalles, analyst at Fitch, tells LatinFinance. She expects a continued favorable scenario for corporate issuers in the second half of the year. Falling interest rates – 450bp so far in the current cycle – are not new, of course, but the expectation for continued cutting continues a trend present all year, pushing issuance to new highs. “We expect to see this issuance continuing in the rest of the year,” says a Sao Paulo-based DCM banker. Through Friday, debenture issuers had raised BRL8.31bn in rule 400 (unrestricted) bonds – excluding leasing transactions – according to the CVM, and BRL32.93bn in rule 476 (restricted) debentures, according to Anbima. This compares to BRL3.18bn in rule 400 sales and BRL30.84bn in rule 476 deals during the corresponding period in 2011. The challenges going forward are extending tenors, still under 7 years for most corporate borrowers, and getting the first issue out the door under tax-exempt bonds designed to encourage issuance funding infrastructure. BR Properties issued BRL600m in domestic bonds, using an overallotment to increase from BRL500m, after upsizing from a planned BRL400m. A BRL369m 2017 tranche pays DI+1.08%, coming in under a 1.20% ceiling. A BRL231m 2019 inflation-linked tranche pays 5.85%, inside of a 6.15% ceiling. The commercial real estate specialist is raising funds to repay short-term debt. Banco Votorantim, Bradesco, BTG Pactual, Citi, Itau and Santander managed the sale, rated AA on a national scale. The deal follows transactions fro