Brazil announced today that it is poised to issue a new 10-year euro-denominated bond that could raise E1 billion. The bond will target European retail clients and offer a yield of about 7.5%.
Ricardo Amorim, head of Latin American research at WestLB, reckons that in the short term the new bond “may end up being slightly aggressively priced, but this should not impede it to reach a decent volume.”
The new 10-year is another step in Brazil’s strategy to diversify its currency exposure. Last year, Brazil raised E1 billion through two deals with eight-year maturities.
Only E7 billion ($9 billion) of Brazil’s $65 billion in outstanding sovereign and sub-sovereign eurobonds are denominated in euros, according to WestLB. “While the share of euro-denominated public bonded debt is less than 15% of Brazilian public bonded debt, exports to Europe and FDI from Europe both account for over 20% of total,” adds the bank.
Brazil has stated that it intends to raise about $4.5 billion this year in the international capital markets. Bankers expect the Latin nation will to want to complete its financings before any further interest rate rises in the US.
Money raised through the 10-year bond will be added to Brazil’s net international reserves, which stand at $27.5 billion. As this figure is likely to rise over the forthcoming months, analysts expect Brazil will decide not to renew its agreement with the IMF, which expires in March.
Brazil will pay $1.1 billion in interest to the IMF this year, according to WestLB. If the agreement with the IMF is not renewed, adds the bank, Brazil will pay an additional $7 billion in amortization out of a total of $25 billion owed to the multilateral by the end of 2007.