December 2, 2015 / 10:02 PM / in 4 years

LATAM WRAP-More woes for Brazil bonds after impeachment report

NEW YORK, Dec 2 (IFR) - Investors were keeping a cautious eye on Brazil again Wednesday after the local press reported that impeachment proceedings had been opened against embattled President Dilma Rousseff.

While the news broke late in the day, the sovereign’s 2025s inched about a 1/4 point lower to hit around 85.50-85.75, while five-year CDS was being quoted at around 453bp.

“The news has still got to sink in,” one broker told IFR.

The move is likely to complicate the Brazilian credit story at a time when the arrest and resignation of BTG Pactual CEO Andre Esteves last week has sent its bond prices reeling.

“In the short term this will increase uncertainty,” said Pablo Cisilino, a portfolio manager at Stone Harbor.

“Impeachment is not something that happens overnight. It is a very long process.”

The political battling is likely to draw attention away from fiscal reforms that are badly needed to get the region’s largest economy back on track.

“It is not good news for the fiscal consolidation process because it will delay the 2015 and 2016 budgets,” said Alejo Czerwonko, an economist in the chief investment office of UBS Wealth Management.

“The country is running a 9.5% of GDP fiscal deficit, so you need to get that under control. This is hurting the fiscal consolidation process, which in turn is hurting the macro economic environment.”

This comes after BTG Pactual bonds saw another ugly sell-off amid high volumes, as the bank’s partners sought to distance the institution from Esteves.

Arrested last week as part of a corruption investigation at oil company Petrobras, he agreed to a share swap to relinquish control to the firm’s founding partners, according to Reuters.

But the uncertainty surrounding the bank had accounts continuing to dump its bonds in the secondary Wednesday, a day after Moody’s downgraded the credit to Ba2 from Baa3.

The senior 4% 2020s sunk another 13 points to around 57.00-59.00, while even the 2016s - considered the safest part of the curve - were about five points lower at 68.00-70.00.


Pemex (Baa1/BBB+/BBB+) mandated Barclays and HSBC for an investor call that was scheduled for Wednesday.

Argentine oil company YPF is approaching investors with a price of 103.73 for an up to US$100m tap of its 8.875% 2018s, with pricing expected on Wednesday. Itau is sole lead.

Arcos Dorados, the largest McDonald’s franchiser in South America, held a Swiss roadshow last month via Credit Suisse. The Argentina-based, NY-listed company is rated Ba3/NR/BB+.

Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.

Brazilian airline Gol (B3/B-/B-) has completed roadshows with Morgan Stanley, Credit Suisse and Citigroup. (Reporting by Paul Kilby; Editing by Marc Carnegie)

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