UPDATE 2-Brazil debt sales to gain from fewer state bank disbursements

Tue Jan 14, 2014 3:34pm EST

By Guillermo Parra-Bernal

SAO PAULO Jan 14 (Reuters) - Brazilian local debt offerings will probably recover this year, driven by growing demand for infrastructure notes as state-run banks slow corporate loan disbursements, bankers said on Wednesday.

Aggressive lending practices by state banks partially crowded out local bond and stock sales last year, said Marcio Guedes, a director at Anbima, the group representing the investment banking industry in Brazil. Sales of fixed-income instruments such as notes, asset-backed securities and commercial paper fell 22 percent to 127.35 billion reais ($54.5 billion) last year, Anbima said.

Private-sector lenders and bond investors could take up some of the slack resulting from a drop in disbursements by state banks, Guedes said. His remarks come as government officials have acknowledged the need to put the brakes on state lenders, which last year saw their loan books expand at a pace five times faster than that of private-sector rivals.

"The aggressiveness of state banks created a flow of credit into companies that somehow alleviated the need for corporate issuances of debt, but since we are witnessing a partial reversal in that trend a recovery in local note sales could be possible," he said at an Anbima event in São Paulo.

Major rating companies have assumed a more bearish tone on Brazil's sovereign debt rating due to the consequences of the increased use of state lenders to revive weak growth in Latin America's largest economy. The government is aware of the risk that increased use of state banks could lead to a rating downgrade, Guedes said.

2013 was a mixed year for capital markets activity in Brazil, the second-largest emerging market economy. Sales of bonds, asset-backed securities and equities totaled 151.244 billion reais last year, down from 178.295 billion reais in 2012.

Companies placed $38.1 billion of debt in international markets last year, down from about $50.6 billion in 2012. A weaker dollar is unlikely to discourage companies from selling global bonds in overseas debt markets this year, and the risk of the real, Brazil's currency, sliding further is limited, Guedes said.

RATES, ELECTION

Central bank efforts to head off accelerating inflation last year, which included raising borrowing costs from a record low, weighed on demand for fixed-income instruments and prevented companies from selling notes, Guedes said. Traders are pricing a 66 percent chance that policymakers will lift the benchmark overnight Selic lending rate by half a percentage point to 10.5 percent this week.

Policymakers have raised the Selic for the past six meetings of the central bank's monetary policy committee, which unveils the results of its latest meeting on Wednesday.

Despite the decline in the value of debt offerings, a few aspects of the local debt market in 2013 were encouraging, the Anbima executive added. For instance, the share of debt offerings with maturities over 10 years rose to about 14 percent of the total in 2013, compared with 13 percent in 2012.

Last year, electricity utilities were the largest issuers of debentures, as local debt notes are known in Brazil, with about 23 percent of the total. Transportation and logistics companies, which are spearheading a surge in investment in those sectors, were responsible for 16 percent of debentures offerings in 2013, Anbima said.

Guedes also played down concerns that this year's presidential election could disrupt capital markets activity in a significant manner. Brazilians elect a president, state governors as well as federal and state lawmakers in October, following four months of intensive campaigning.

"It's already been priced in, and I don't think noise should create further problems for this market," Guedes noted.

IPO MARKET

In terms of stock sales in the local equity markets, volumes and the number of transactions rose significantly, Anbima data showed.

In 2013, companies and shareholders raised a total 23.89 billion reais from share sales, compared with 14.3 billion reais in 2012.

Guedes stopped short of giving forecasts for activity in the equity market but pointed out that Brazil's once-hyped IPO market may not rebound as swiftly as some investors hope, given the risk of overpriced deals and flagging economic growth.

Foreign investors, traditionally the largest buyers of Brazilian initial public offerings, are watching from the sidelines while they question the quality of stock market debutantes - especially mid-sized companies. In fact, IPOs of mid-sized companies will likely be purchased mostly by local, not foreign, investors, he said.

Sectors where Anbima's Guedes see increased activity for IPOs include agribusiness, information technology and telecommunications.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article