Brazil is looking to issue bonds with embedded derivatives to better manage its debt maturity profile and wants banks to pitch such structures to it, according to DW sister publication Emerging Markets Week. If market conditions are favorable the central bank would like to offer more deals with embedded puts, calls and warrants, said officials at the bank.
"Sometimes we feel as though investment banks are not creative enough when offering structures," said Jose Linaldo Gomes de Aguiar, head of the external debt department for the Brazilian Central Bank. "A more complex deal gives us more control over the maturity profile of our debt."
Gomes adds he would like to see proposals that would allow Brazil to issue longer maturity bonds under the current market conditions at affordable prices. Others in his department said Brazil would like to issue bonds with maturities out to 15 or 25 years.
Investors agree that more complex structures often allow issuers to better manage their debt and cater to buyside needs, but that's not always easy. "Debt management deals will get more complex once issuers understand that different types of investors own different parts of the curve," and want different things, said Mohamed El-Erian, portfolio manager at Pacific Investments Management Co. Although this has occurred in Latin America, a less stable financial atmosphere in the region usually makes investors focus on liquidity over fancy structures, others say.
So far Brazil has used basic structures. Last August, Brazil issued a USD5.15 billion 11% bond, which matures in 2040 and is callable in 2015. The idea behind the call was to have more control over such a long-duration deal, says Gomes.
