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‘Fast and Furious’ Brazil Company Bond Sales Lure CSN

Gol the country’s biggest airline
A Gol flight departs Congonhas Airport,in Sao Paulo. Photographer: Marcos Issa/Bloomberg

Brazilian companies led by Cia. Siderurgica Nacional SA and Gol Linhas Aereas Inteligentes SA are selling bonds overseas at the fastest pace since April to take advantage of borrowing costs near the lowest in two months.

CSN, Brazil’s third-largest steelmaker, and Gol, the country’s biggest airline by market value, sold a combined $1.3 billion of bonds this week, the most since issuers raised $1.9 billion in the week ended April 30.

Brazilian companies are returning to international markets after their average bond yield dropped 20 basis points, or 0.2 percentage point, this month to 6.43 percent, according to JPMorgan Chase & Co.’s CEMBI index. Sao Paulo-based Banco Cruzeiro do Sul SA ended on June 30 a two-month drought in sales that was sparked by concern the global recovery was slowing. BM&FBovespa SA, the Sao Paulo-based owner of Latin America’s biggest securities exchange, and Belo Horizonte-based Banco Mercantil do Brasil SA sold debt last week.

“They tried to sell as many deals as possible,” said Paolo Valle, who co-manages about $1 billion of emerging-market assets with Federated Investors in Pittsburgh. “We have a large pipeline of new issues.”

CSN of Rio de Janeiro sold $1 billion of 10-year notes to yield 6.625 percent yesterday, the biggest dollar-denominated issue from a Brazilian company since Itau Unibanco Holding SA sold the same amount on April 8. CSN initially marketed the bond sale with price guidance of 6.75 percent, said a person familiar with the offering who declined to be identified because he’s not allowed to speak publicly.

‘Fast and Furious’

Gol, based in Sao Paulo, issued $300 million of 10-year debt to yield 9.5 percent on July 14. Demand for the notes reached $1.25 billion, leading the company to cut the yield it planned to pay from 9.625 percent, according to a person with knowledge of the sale who isn’t authorized to speak publicly.

“We were ready two months ago and were just waiting for a window of opportunity,” Leonardo Gomes Pereira, Gol’s chief financial officer, said in a telephone interview yesterday. “Investors are more selective, much more cautious than before the European crisis deepened.”

The sales brought Brazilian corporate bond issuance this year to $17.4 billion, compared with $7.4 billion in the year-earlier period, according to data compiled by Bloomberg.

“Everyone wants to use this opportunity, and they don’t know how long it will be open,” said Edgardo Sternberg, an emerging-markets strategist at Loomis Sayles, which manages about $140 billion in assets. “They come fast and furious.”

Spreads Widen

The extra yield investors demand to hold Brazilian dollar bonds instead of U.S. securities rose one basis point to 228 today, according to JPMorgan.

The yield on Brazil’s interest-rate futures contract due in January declined nine basis points to 11.06 percent. The real fell 1.1 percent to 1.7821 per dollar, the most in more than two weeks.

The cost of protecting Brazilian debt against non-payment for five years with credit-default swaps jumped four basis points to 128 today, the biggest jump in more than two weeks, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

The yield gap on Brazilian corporate dollar bonds over U.S. Treasuries has climbed 103 basis points from a 2 1/2-year low of 227 basis points on April 5, according to JPMorgan’s CEMBI index. It jumped nine basis points yesterday.

‘Cheap and Easy’

“It’s definitely not a time of cheap and easy deals,” Cristiano Gomes, Banco Mercantil’s financial director, said in a telephone interview. “We had a good window, but it’s clear that you have to be alert to news” that could roil the market, he said.

Banco Mercantil sold $200 million of 10-year notes to yield 9.625 percent on July 9. Officials at CSN and BM&FBovespa, which issued $612 million of 10-year securities, declined to comment on their sales.

More companies will try to tap overseas debt markets this month before August, traditionally the slowest month of the year as many U.S. investors take summer vacation, said Natalia Corfield, a corporate debt analyst at ING Groep NV in New York.

“There is cash on the sidelines and if we do not see more shocks, the market can certainly absorb more,” Corfield said in a telephone interview.

JBS SA, the world’s largest beef producer, plans to meet with bond investors, according to Vanessa Esteves, a spokeswoman for the Sao Paulo-based company.

Gol Rally

Gol’s new securities rose to about 99.75 cents on the dollar in secondary market trading yesterday from their issue price of 98.41 cents, according to Gramercy, a Greenwich, Connecticut-based investment firm with more than $2.6 billion in assets. The bonds were bid at 99.8 cents this morning, according to Tradition Asiel Securities Inc.

The 6.5 percent bonds sold by CSN traded at around 99 cents today, down from an issue price of 99.10 cents, according to Gramercy.

“It’s a good opportunity to put cash to work,” said Rodd Kauffman, head of fixed-income trading at Gramercy. “But it’s probably a better opportunity to watch these deals that are coming out and be ready to take advantage of volatility to get them at the proper price and not necessarily the issue price.”

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