By Guillermo Parra-Bernal
SAO PAULO Jan 14 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
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
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,
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.
In terms of stock sales in the local equity markets, volumes
and the number of transactions rose significantly, Anbima data
In 2013, companies and shareholders raised a total 23.89
billion reais from share sales, compared with 14.3 billion reais
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