Underwriter predicts Cielo’s record low pricing will be beaten soon

Cielo, a Brazilian card-payment processor, created a new record low-yield for a Brazilian corporate issuer of 10-year debt. The $875 million transaction was rated BBB+/Baa2 and priced at 99.316 with a 3.750% coupon to yield 3.833% or US treasuries plus 225%.

The deal enjoyed the over-subscription that has characterized the recent international debt capital markets for Latin American issuers, attracting a book of $6.4 billion.

Despite the low price, Leandro Miranda, managing director and head of fixed income for Bradesco BBI, which led the deal with Banco do Brasil and Goldman Sachs, expects the record to be beaten soon.

“This transaction will change the course of history of Brazilian corporate bonds,” says Miranda. “[Price] is going to go much closer to the US. Emerging market accounts and US investors are willing to diversify their portfolios into bonds from different regions, and especially the Brics. The amount these investors are willing to invest is far higher than the [volume] of securities that is being offered and the competition will drive the yields down.”

Despite some talk of a bubble in Latin American credit, there could still be room for the spread over treasury to compress. The average spread for BBB-rated bonds from Latin America has fallen by 49bp since 2009, while US companies with the same international ratings have enjoyed a fall, on average, of 163bp.

Brazilian BBB-rated issuances have seen average spreads fall by just 12bp in the same period and have an average spread of 326bp over treasuries in 2012. The data show that Chilean corporates enjoy the tightest spread: in 2012, the average spread for 10-year BBB paper was 261bp over treasuries. Meanwhile, the compression of the average of this benchmark from Mexican issuers has fallen by the most between 2009 and 2012, by 142bp.

The small fall in Brazilian corporates makes the price of Brazilian issuance more comparable with European bonds, with an average spread of 326bp over treasuries for Brazilian BBB debt compared with a European average of 316.

For full story visit Euromoney


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