Brazil has seen a steady flow of signings in the past three years, including three utilities that joined in the last six months. They are well known by international investors and are frequent issuers that see good demand for their notes. But despite having the biggest domestic market in South America, Brazilian issuers are increasingly accessing the international markets for longer tenors and dollar funding. Brazilian issuers have sold 226 trades since January 1 2000. This is over four times the number from Argentina, the next biggest borrowers in South America. Brazilian borrowers issued 137 trades in 1999 and the previous year they sold 139 notes. But despite the volume, which is on a par with countries such as Norway, Spain and Hong Kong, the Brazilian issuers are relatively conservative in their choice of currency. Of the 226 trades issued since January 1 2000, 88% were in US dollar. Fifteen euro trades and just one sterling note were the only other currencies sold. And in the private market the dollar is as strong, accounting for over 82% of the volume (according to MTNWeek criteria). An emerging markets expert at Barclays Capital explains why Brazilian borrowers favour dollar. He says: "The swap into dollar can get expensive for them, so it's a currency they don't take a view on at the moment, but it should be something that will develop in future. The euro is not as robust at the moment and most European investors can take dollar anyway." Companhia Energetica de Sao Paulo (CESP) signed a $700 million Euro-MTN programme last week and dived straight into the market with a $300 million trade. One dealer at Westdeutsche Landesbank (WestLB), joint bookrunner off the trade with Banco Finantia, says the trade met good demand. The borrower drummed up demand for the trade with a roadshow in Lisbon, Geneva and New York. This paid off and on the back of the enquiry CESP issued a second note for euro200 million ($181.89 million). And one dealer at WestLB says: "There was very strong demand for both trades - they were oversubscribed by between 30% and 40%." Corporates such as CESP are strong names, but the Brazilian market is mainly made up of banks. Banco Bradesco - Banco Brasileiro de Descontos (Banco Bradesco) ranks ahead of names such as Sanpaolo IMI, Banque Generale du Luxembourg and Bank Austria in terms of the number of private placements issued since January 1 2000. Banco Bradesco set up its $1 billion global MTN programme in May 1999 and two thirds of its 116 trades outstanding have been issued in the private market. Patrick Gontier is finance manager at Banco Bradesco and he explains why they access the international markets: "Most of our issues off the programme are sold into the Euromarket and they finance our operations abroad." ABN Amro is one of the leading bookrunners off Brazilian debt in 2000. An emerging markets specialist at the bank says: "Brazilian banks are well-known names to the offshore US and European investor communities and accessing these markets helps them to hit their funding targets with agility." He adds: "Brazilian MTN issuers are typically more frequently in the market and certainly have a stronger international following, particularly in the US dollar market." And an emerging markets expert at Barclays Capital agrees with this. He says: "The Brazilian issuers want to expand their investor base and access the attractive dollar funding in tenors of one, two and three years. And the domestic market is a limited pool." But the domestic market still provides very attractive funding for Gontier's treasury group at Banco Bradesco. Gontier adds: "The Brazilian domestic market has an appeal and that appeal is its size. It's very liquid and comfortable to trade in." The emerging markets specialist at ABN Amro backs this up. He says: "The Brazilian domestic market is growing in sophistication, size and credit appetite. And also in its ability to take longer tenors, so it helps them to tap the domestic market when they can't access the international markets." But Banco Bradesco's Gontier admits there are drawbacks to issuing in the domestic market. He says: "There are restrictions from the Central Bank of Brazil and it is difficult to send money abroad. It's kind of expensive and there is tax and lots of regulations to meet, so it is much easier to raise the funds abroad directly." Julio Lapa, chief financial officer at CESP, believes that it is market conditions that dictate whether to access the domestic or international markets. He says: "For public companies it is easier to go to the international markets because of regulations in Brazil regarding debt from public companies. This doesn't affect private companies. The decision really comes from the markets - it all depends on whether they will accept the right maturities and amounts that we require." And according to the emerging markets dealer at Barclays Capital, Brazilian borrowers are a name to watch in future. He says: "There's a lot of familiarity on the investor side and an emphasis on the corporate curve and a history of issuance. The Brazilian clients have the right presence and size. In terms of emerging market borrowers, the Brazilians are some of the sharpest names."
February 23, 2001
