Santander follows Cosan with global real bond sale
NEW YORK, March 15 (IFR) - Santander Brasil has become the second Brazilian issuer to tap the global Real market in a matter of weeks, raising hopes that the moribund asset class may be set for a revival after months of inactivity.
The illiquidity of these bonds continues to give foreign investors pause, but broader macroeconomic trends, as well as strong inflows into local currency funds, may mean that the buyside could be more receptive to Real-denominated bonds. Last year, foreign buyers backed away from the Real as the government imposed measures to restrain the strength of the currency.
However, the assumption now is that the country's rates curve will flatten as the Central Bank takes cautious but firm steps to raise rates without hurting an economy. This is turn would make the longer end of the Real bond curve - three to five years - relatively attractive, said one banker.
"The higher rates will also support BRL," he said. "But any action by the Central Bank will be limited for the foreseeable future as they don't want to crush growth. Net-net that is neutral for the medium and longer part of the curve. So if you are agnostic on where rates are going and comfortable with the currency, now is the time to dip your toes."
Books on the Santander Brasil bond reached a healthy-enough R$1.7bn before the R$750m (US$383m) three-year bond was priced at par to yield 8%, the lower end of 8.000%-8.125% revised guidance, and inside initial talk of low 8.000% area.
Still the buyer base on this occasion suggests that US investors remain wary. The bulk of the demand came from Latin America, with the US and Europe both putting in solid orders, said a DCM banker. Latin American pension funds, in particular, were buyers.
"Investors don't pad BRL deals the way they pad US deals, so the fact that the books were [that high] is a good thing," said a DCM banker.
Apart from this trade, there has been a fair amount of reverse enquiry following a successful Real trade from sugar and ethanol company Cosan, which saw demand reach around R$2.5bn before the five-year was priced at 99.513 with a 9.5% coupon to yield 9.625%.
Final pricing came some 400bp over the sovereign curve, where the Global Real 2016s and 2022s were trading at around 5.60% and 6% respectively, providing investors with a nice cushion against any rates or currency volatility.
Other bankers are less sanguine about the prospects of a surge of new Global Real deals from corporates.
"There's only so much capacity for [Brazilian real] in the market," said a banker. "It isn't unlimited, mainly because people are afraid of illiquidity in the secondaries."
Also the companies that tend to favour Real issuance are often debut borrowers in the international markets. As a result, they take longer to come to market and may miss opportunities in a market that can open and close fairly quickly.
The Santander Brasil senior unsecured notes are being sold under a Reg S/144a format. Ratings are Baa1/BBB/BBB. Although the bonds are denominated in Brazilian real, payments are made in US dollars. Joint bookrunners were Barclays, BTG Pactual, Deutsche Bank and Santander. The settlement date is March 18 and the paper matures on the same day in 2016.
(This article will be published in the March 16 issue of International Financing Review, a Thomson Reuters publication; for more, see www.ifre.com)
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