Cielo’s landmark R$4.6 billion ($1.5 billion) local bond has lifted hopes that the volatility that has severely restricted local debt activity – and halted international debt capital markets issuance completely from Brazilian borrowers – is receding. Cielo, a credit and debit cards company, is one of the leading Brazilian blue chips and the deal was the second largest ever sold in Brazil’s domestic markets. Demand was more than R$12.2 billion, equivalent to one-third of the total volume distributed in 2014.
The deal represented a reopening of the CVM400 market (unfettered marketing and distribution structure) with restricted-distribution deals previously dominating year-to-date. Asset managers took most of the paper (91.1%) with the remainder being distributed to insurance companies (8%), banks (0.9%) and private banking clients (0.8%).
The lead coordinator Bradesco BBI, along with joint leads BTG Pactual and JPMorgan, claim to have repriced the Brazilian credit market and provided a benchmark for other issuers to come. The large book enabled the banks to tighten pricing, from initial guidance of around 109% of CDI to close at 105.8% of CDI – a level that is below capital markets funding costs for leading Brazilian banks.
“There is now a reference for other deals to rely on,” says Renato Ejnisman, head of Bradesco BBI and member of Bradesco’s executive committee. Speaking to Euromoney before the publication of Petrobras’ audited accounts on April 22 he said he believed the combination of Cielo’s deal and the removal of the Petrobras accounts issue would lead to a “surge in new deals”.
Ejnisman says the success of the deal not only relied on the high quality of the issuer’s credit but also what he believes is the beginning of a new phase for Brazil. “It may be too soon to say, but this could be the inflection point that we have been anticipating,” he says. “The [government’s] fiscal adjustment is starting to show a lot of traction and there are signs that we are seeing a turnaround. The real has appreciated by almost 10% in the past few weeks, there has been a fall in the CDS spreads for Brazil and even this issuance by Cielo is a sign of this inflection point.”
This sense of optimism isn’t restricted to the domestic debt capital markets. “We expect activity from Brazil to pick up relatively soon,” says Alberto Ardura, head of capital markets and treasury solutions Latin America at Deutsche Bank. “The market is open, yields for Brazilian credits have been improving for the past two weeks and we expect that to continue. At this point there is no lack of appetite for Brazilian credit. As spreads continue to come in we do expect issuance activity to resume.”
Despite the recent rally in asset prices there are many voices warning that it is premature to say the Brazil has definitely reached an inflection point. Goldman Sachs has launched a new tool, called Nowcast, to help the bank track Brazil’s macroeconomic situation. The bank says that the fiscal adjustment has “to a large extent, yet to start in earnest and is also the macro variable that is most likely to take the longest time to reach the desired level. Some key fiscal measures have yet to be approved by Congress while others will come fully into effect throughout the year.”
However, Ejnisman says that over 400 investors attended a recent conference his bank hosted and he sensed that a new entry point may have been reached. Of those international investors present, he said that “those who were averse to Brazil are now intrigued, and those that were intrigued are now moving to being genuinely interested [in investing capital] again”.
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