Brazil Sells $3.2 Billion of Bonds to Finance Overseas BuybacksBoris Korby
Brazil sold $3.2 billion of dollar bonds due in 2025, creating a new benchmark security in international markets, as it buys back notes maturing in as few as four years.
The debt yields 1.8 percentage points more than similar-maturity U.S. Treasuries, data compiled by Bloomberg show. The company sold $1.5 billion of the bonds for cash that will be used to repurchase outstanding debt maturing from 2017 to 2030. The sovereign also exchanged $1.7 billion of the bonds directly with holders of existing securities. Banco Bradesco SA, Deutsche Bank AG and HSBC Holdings Plc managed the sale.
Brazil joins emerging-market issuers from Mexico’s Comision Federal de Electricidad to Russia’s OAO GMK Norilsk Nickel in selling dollar debt after U.S. lawmakers agreed last week on a deal to end a 16-day government shutdown and extend the nation’s borrowing authority. Brazilian construction firm OAS SA, iron-ore processor Samarco Mineracao SA and meatpacker JBS SA have issued $2.1 billion of notes over the past week, ending a three-week drought in corporate offerings from the country.
“From the sovereign’s perspective, they’re trying to clean up a lot of issues in which they’ve done partial buybacks before,” David Bessey, a money manager at Prudential Financial Inc. in Newark, New Jersey, said in a telephone interview. “There are issues out there that because they’re relatively less liquid, they trade cheaply. They’ll try to take those out and at the same time establish a new benchmark.”
Brazilian borrowing costs have surged this year amid declining growth forecasts, quickening inflation and speculation the U.S. will pare back stimulus efforts that have boosted demand for emerging-market assets. Standard & Poor’s lowered the outlook on the country’s BBB credit grade to negative in June amid concern sluggish expansion and growing government spending could lead to rising debt levels.
Brazil’s dollar bonds pay an average 220 basis points, or 2.2 percentage points, more than Treasuries, compared with 140 basis points at the end of 2012, according to data from JPMorgan Chase & Co.
Latin America’s largest economy will expand 2.5 percent this year, according to the median estimate of about 100 economists surveyed by the central bank Oct. 18. Growth slipped to 0.9 percent in 2012 from 2.7 percent in 2011, capping the slowest two years of expansion since 1999, according to data compiled by Bloomberg.
Quickening inflation has prompted policy makers to raise interest rates by 2.25 percentage points this year to 9.5 percent. Consumer-price increases have exceeded the government’s 4.5 percent target for three years.
The sovereign last sold dollar debt in May, issuing $800 million of 2023 bonds.