Investors look forward to Brazil’s first green bond, Fitch says

Brazil is in a good position to issue its first sovereign green bond and can count on solid demand from investors if it decides to do so, said Paula Carvalho, associate director at Sustainable Fitch.

The administration of Luiz Inácio Lula da Silva, which took office on January 1, has ambitious targets for environmental protection and sustainable development, but the country has never issued a sovereign green bond, Carvalho said during a webinar hosted by Fitch Ratings on Tuesday.

“Neighboring countries, such as Chile, Peru, Colombia and Uruguay, have already issued ESG bonds. A sovereign green bond may be an option for the country especially when international investors intend to support the government’s efforts to protect the Amazon and Cerrado ecosystems,” she said.

Large sponsors of the Amazon Fund, such as Norway and Germany, have said they will resume their partnerships with Brazil, which were interrupted during the previous administration led of President Jair Bolsonaro.

“Expectations towards the new government are positive after Marina Silva’s appointment at the environment ministry. The current platform of the Lula government includes the fight against deforestation and illegal mining activities as well as reforms in agribusiness to support sustainable activities. It remains to be seen whether the government will be able to implement these conservationist measures in the face of agribusiness pressures and also due to political polarization,” Carvalho said.

CORPORATE CREDIT RISKS
In the meantime, Brazil’s corporate credit risks are manageable, although there may be some concerns about bond refinancing next year, said Fernanda Rezende, a rating analyst at Fitch.

“Only $4 billion were issued in bonds by non-financial companies between January and November last year. This was a substantial decline compared to the $20 billion in 2021. The expectation is that the bond market will remain limited at least during the first half of the year,” Rezende said.

“The positive point is that Brazilian companies that are publicly rated have a limited number of bonds that come to maturity this year of only $1.8 billion, including Gerdau, BRF and Embraer. But there is some concern regarding 2024 when $9 billion in bonds will come to maturity,” she said.