By Tatiana Bautzer
São Paulo (Reuters) – Brazil’s investment banks are focusing on debt issuance through the third quarter, an area that has maintained strong activity even as interest rates have risen.
Philip Thot, director of Bradesco BBI, the investment bank controlled by Banco Bradesco SA, expects total domestic debt issuance to reach about 430 billion riyals ($83 billion) this year. Between January and August, issuance was up 30% compared to the same period last year. “The current volume of debt issued in riyals is about twice the levels of 2020, even with much higher interest rates than they were at the time,” Thout added.
Domestic fixed income issuances accounted for 96% of Brazil’s capital markets activity in August, according to industry group Anbima, even as Selic’s benchmark interest rate reached 13.75%, up from a record low of 2% in 2020.
The volume of equity issuance is down 53.5% in dollars this year, and the volume of M&A deals is down 31% from the same period last year, according to Refinitiv data. Uncertainties about the presidential election affect deals, as well as fluctuations in global interest rates.
Thoth added that the large domestic inflows into fixed exchange portfolios are fueling the demand for private debt. Fixed income funds received net inflows of 309 billion riyals ($59 billion) in the 18 months to July.
Another factor, Thout said, is higher-than-expected growth this year, which is causing companies to issue bonds to fund expansion.
Tax-free bonds for infrastructure, real estate or agriculture companies have lower costs and were the first choice for companies, approaching 20 billion riyals in the first five months of 2022.
The executive believes that the volume of equity issuance, especially initial public offerings, could rise again once it becomes clear when the Central Bank of Brazil may begin to cut interest rates. Brazil recorded deflation last month as fuel prices fell.
So far this year, there have been no IPOs in Brazil, but 18 affiliate offerings. Last year, there were 78 deals, including 46 IPOs, according to Refinitiv data. Thoth said Bradesco BBI will not make any changes to the team this year, as the bank anticipates a recovery in capital markets in the medium term.
(1 dollar = 5.2037 riyals)