The Last Surviving Corner of Brazil's Devastated Credit Market

  • Pipeline for new issues of so-called CRAs tops $3.3 billion
  • BRF, Suzano and Fibria among companies selling the notes

In Brazil’s devastated credit markets, there’s a corner where the pipeline of new issues is still full and demand outstrips supply by as much as four to one: The market for agriculture notes.

Pulp producers Fibria Celulose SA and Suzano Papel e Celulose SA, wood-panel manufacturer Duratex SA, and processed-food maker BRF SA are among companies planning to raise more than 3.3 billion reais ($901 million) this quarter by selling certificates of agricultural receivables, known as CRAs. That puts the niche market on track for its best quarter since the notes were created in 2004.

The instruments are a hit among retail investors who get a break on Brazilian income taxes. Companies love them, too, because they offer cheap financing at a time when other funding sources from syndicated loans to local debentures and foreign bond sales have dried up. Not a single syndicated loan has been made to a Brazilian company this year, compared with $12 billion in 2015, data compiled by Bloomberg show. Meanwhile, new issues of local bonds have tumbled 33 percent, capital markets association Anbima said.

“Talking to investors and bankers that are structuring the notes, it’s clear that CRAs are attracting the most attention right now,” said Felipe Ribeiro, a manager at securitization company Grupo Gaia in Sao Paulo. “Obviously, well-known names should come to market first, which is what we’ve been seeing this year. That trend should continue in coming months.”

The real-denominated CRAs are backed by receivables on crops that have already been sold through contracts and are issued by local securitization companies.

BRF is pricing as much as 1 billion reais of new CRAs this month, yielding a maximum of 96.5 percent of Brazil’s interbank rate know as the CDI, which now stands at 14.13 percent a year, according to regulatory filings. In October, the company paid 96.9 percent on a 1 billion reais issue. Suzano has also seen borrowing costs drop using the instrument. The pulp producer aims to raise at least 500 million reais, paying up to 99.5 percent of the CDI. That’s down from 101 percent on a similar deal in June.

Local companies tapping the regular debenture markets in Brazil have paid an average 119.9 percent, up from 115.3 percent six months ago, data compiled by Bloomberg show.

"Agribusiness in Brazil, for all its difficulties, is still growing," said Moacir Teixeira, a partner at Sao Paulo-based Ecoagro, a company that securitizes CRAs. "If you look at production and productivity versus the area planted for grains, for example, our growth is still fantastic. That’s what’s driving the search for more CRAs in a scenario of limited funding options."

The securities were created in 2004 as a way to boost funding options for producers, but it wasn’t until 2012 that Octante Agronegocio sold the first CRA, raising 85 million reais. While the bonds are high on the list of wealth managers to recommend to their rich clients, hedge funds and institutional buyers, which don’t qualify for the tax exemption, will typically pass them by.

"This is one of the very few segments in Brazil where the market is still optimistic,"  said Carlos Ratto, commercial and products director at Cetip SA, Brazil’s biggest securities clearinghouse. "Investors are getting used to the structure, while strong and well-known names are coming to the market."

Below are the details of CRAs to be priced in coming weeks:


Expected Volume

Maturity Date

Expected Interest

Fibria1.35 billion reaisNot known yetNot known yet
BRF1 billion reaisApril 19, 2019Up to 96.5% of CDI
Suzano 500 million reaisApril 13, 2020Up to 99.5% of CDI
Duratex500 million reaisApril 1, 2022Up to 102.5% of CDI
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