UPDATE 5-Brazil sells $3.5 bln in 2045 bonds, offers to buy back other debt

Wed Jul 23, 2014 7:43pm EDT

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(Updates with terms of 2045 bond sale)
    By Luciana Otoni
    BRASILIA/SAO PAULO, July 23 (Reuters) - Brazil's Treasury on
Wednesday sold $3.5 billion worth of a new 30-year global bond,
while offering to buy back shorter-dated maturities that had
been issued under costlier terms.
    The deal aims to facilitate future debt issues by Brazilian
companies, whose bonds are often priced in accordance with the
country's sovereign yield curve, or the returns paid on
different government bond maturities.
    "That creates a new point in the (yield) curve, withdrawing
bonds that are not a good reference anymore," said a source with
direct knowledge of the deal. 
    The deal, which was managed by Bank of America Merrill Lynch
, Deutsche Bank and Itau, does not
mean that the government has given up plans to issue a
yen-denominated bond this year, the source added. 
    The Treasury said in a statement it sold around $3.5 billion
of the new bond due in January 2045 by the close of U.S.
markets, paying investors a yield of 5.131 percent, or 187.5
basis points above comparable U.S. Treasuries. It was the widest
spread over Treasuries for a 30-year bond issued by the
Brazilian government since 2009, the Treasury said, signaling a
decline in global liquidity conditions.
    An additional $50 million of the 2045 bonds will be offered
to Asian investors under the same terms.
    About $2 billion of the sale's proceedings will be used to
buy back shorter-dated bonds, another source with knowledge of
the deal said. The remaining $1.5 billion will be used for
general government purposes. 
    The sale was similar to a debt management deal launched last
October, when the Treasury issued $3.25 billion worth of a new
global bond due in January 2025 and bought back
$2.2 billion worth of bonds maturing between 2017 and 2030.
    Initially, Brazil had offered to sell the 2045 bond at a
premium of around 200 basis points over Treasuries. It was later
able to lower that offer as demand for the new bond reached $4.5
billion, Thomson Reuters' IFR reported.
    Worried about tighter U.S. monetary conditions and a
deteriorating Brazilian economy, investors had been demanding
increasingly higher spreads from Brazilian bonds since the
beginning of 2013. 
    That trend reversed last May as investors started betting
that U.S. interest rates will not go up before the second half
of 2015. More recently, appetite for Brazilian assets grew
further as opinion polls pointed to a tighter presidential race,
fueling speculation that an opposition candidate could defeat
President Dilma Rousseff in October. 
    Investors accuse Rousseff, a center-left politician, of
excessive intervention in the economy.
    Details of the repurchase of other bonds will be announced
on Thursday, the Treasury said.
    Currently, there are a combined $11.9 billion in notes
maturing in 2024, 2025, 2027, 2030, 2034, 2037 and 2041. Brazil
has offered to repurchase those bonds paying premiums that range
from 50 basis points to 176 basis points over comparable U.S.
Treasuries, according to IFR.
          
        Bonds being repurchased by the Brazilian Treasury:
 Bond            Maturity   Coupon  Buy-back   Outstanding
                            (pct)   guidance   amount
                                    (bps over  USD
                                    Treas)     
 Global 2024     April 15,   8.875    50       1,145,684,000
                 2024                          
                                               
 Global 2024 B   April 15,   8.875    50          95,037,000
                 2024                          
                                               
 Global 2025     Feb 4,      8.750    66       1,043,516,000
                 2025                          
                                               
 Global 2027     May 15,    10.125    84       1,396,058,000
                 2027                          
                                               
 Global 2030     March 6,   12.250   126         466,450,000
                 2030                          
                                               
 Global 2034     Jan 20,     8.250   174       1,956,412,000
                 2034                          
                                               
 Global 2037     Jan 20,     7.125   176       2,870,304,000
                 2037                          
                                               
 Global 2041     Jan 7,      5.625   173       2,925,000,000
                 2041                          
                                               
    

 (Additional reporting by Guillermo Parra-Bernal and PatrĂ­cia
Duarte, writing by Walter Brandimarte; Editing by Paul Simao,
Dan Grebler, Tom Brown and Steve Orlofsky)
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