After a lull in cross-border activity from Brazilian companies in 2014, many are hoping that 2015 will prove a better year. Pinheiro Neto, which worked on LatinFinance’s two winning liability management exercises in 2014, is no exception.
The Brazilian law firm’s role on Marfrig’s June 2014 tender and new issue — LatinFinance’s 2014 Corporate Liability Management of the Year — is part of what made Pinheiro Neto stand out among its peers. The company also worked on LatinFinance’s Sovereign Liability Management of the Year, a complex, $3.5 billion bond exchange and new issue.
Pinheiro Neto set up a dedicated capital markets team in the early 2000s, to serve what partner Ricardo Russo describes as the second wave of Brazilian financial expansion. After debt capital markets had a first rush of activity in the late 1970s, it was not until the early 2000s that Brazilian issuance picked up again. The economy and political environment stabilized, and foreign investment was incentivized.
At the same time, the Brazilian securities commission, the CVM, introduced regulations for companies issuing equity or debt.
“We had this second wave of Brazilian capital markets, from 2005 to 2008,” Russo says. “It was a dream for certain Brazilian entrepreneurs.”
That showed the government that the capital markets were a viable option for local companies to raise equity or debt. Now, further changes from the CVM may facilitate a pick-up in activity, the partners hope.
“We are pretty excited for the next years,” says Russo. “We think [local markets] will be a mechanism that needs to be used by local companies.”
Already, the introduction of infrastructure debentures has sparked more activity in the local bond market.
“Since 2011, I wouldn’t say there was a third wave,” says Russo. “But the use by companies with infrastructure projects of this mechanism, infrastructure debentures, resulted in big public offerings. Then for the first time I saw an environment that resembled 2005, 2006 in Brazil. Once an offering was registered, we had individuals calling saying, ‘I saw your name in the prospectus, can I buy these debentures?’.”
Incoming regulations may facilitate the trend, the partners hope. The CVM’s blessing for private equity placements — under the Instrução 476 used often for debenture sales — is one such change. Another is the possibility of drawing in greater foreign investment with ADR-style instruments for bonds.
Pinheiro Neto’s capital markets team has grown in size and organization since it was established, tracing the expansion of Brazil’s financial system.
Maintaining a top-notch team in the Brazilian capital markets is not so easy, though. While it’s a “very specialized, interesting area of law”, partner Fernando Ferreira notes that market fluctuations mean there can be large stretches of downtime between projects. Advisory business with banks to corporate clients can help smooth out those cycles, he says. LF
WINNER: Pinheiro Neto