Brazil’s Bond-Market Comeback Marks Milestone as Borrowing Soars

  • Companies already sold more bonds abroad than in all of 2015
  • Eldorado ended an almost two-year drought for new issuers

If there was any doubt that Brazilian companies now enjoy largely unfettered access to international bond markets, Eldorado Brasil Celulose SA has put it to rest.

On Thursday, the pulp and paper producer, which is rated four levels below investment grade, sold $350 million of five-year notes due 2021 in it first-ever overseas offering. The last time a junk-rated Brazilian company pulled off a debut issue was in July 2014. Investors typically are loath to lend to risky businesses with a troubled credit history.

Eldorado Brasil’s bond is a part of a resurgence in overseas borrowing since Michel Temer became acting president last month, fueling investor optimism that a new government will restore the country’s finances and pull the economy out its worst recession in more than a century. The nation’s companies have sold $9.6 billion of notes abroad since May 17 -- already more than in all of 2015.

“There is room for new issues that were seen as impossible a few months ago,” said Klaus Spielkamp, the head of fixed income at brokerage Bulltick LLC in Miami.

Eldorado Brasil, which sold its securities to yield 8.875 percent, wasn’t the only Brazilian company to issue debt abroad last week. Iron-ore miner Vale SA and sugar producer Cosan SA also tapped the overseas bond market, part of a surge from businesses based in developing nations. These businesses and emerging-market countries have sold $14.5 billion of debt so far this month amid speculation slowing U.S. growth will prevent the Federal Reserve from raising interest rates. Brazil’s real has been the world’s best performing major currency this year, advancing 14 percent.

The bond issuance is “strategic” for Eldorado because it marks the start of a long-term relationship with overseas investors as the company prepares to sell shares as soon as it sees a window of opportunity, Chief Executive Officer Jose Carlos Grubisich said in a telephone interview from Sao Paulo.

While Brazilian companies have seen their average borrowing costs tumble this year as President Dilma Rousseff was temporarily removed from office, their debt still yields 3.5 percentage points more than that of peers in emerging markets. That makes their bonds alluring to investors who seek to boost returns amid negative interest rates in many parts of the world.

“This is a potentially good time for Brazilian companies to come and issue debt,” said David Tawil, co-founder of New York-based Maglan Capital LP. “The premium on Brazilian fixed income is interesting and is a good opportunity for investors to collect yield.”

Before it's here, it's on the Bloomberg Terminal.