Author: Antonio Guerrero


Brazil issued its debut real-denominated bond issue on international markets in September. The R$3.4 billion ($1.5 billion) sovereign deal, which matures in 2016, was priced to yield 12.75% (vs. 15.5% for a domestic issue maturing in 2012). The benchmark issue was led by Goldman Sachs and JPMorgan Chase and co-led by Banco Itaú.

The deal was oversubscribed by some $500 million, for which new issues are expected before year-end. Authorities say the issues will help reduce Brazil’s exposure to dollar-denominated debt. Several Brazilian corporates had already issued local currency deals on international markets earlier this year. “The bond … provides fiscal savings compared with domestic debt and avoids the balance sheet mismatch that foreign currency debt entails,” says John Chambers, chairman of the Standard & Poor’s sovereign rating committee.

Investors are encouraged by the country’s improved economic outlook, with a central bank survey of analysts in September increasing the 2005 growth forecast to 3.26%. The improvement was sparked by real-income growth, declining inflation and a better-than-expected 3.9% GDP expansion during the second quarter. The central bank cut its Selic benchmark interest rate by a quarter point to 19.5% in September, after inflation fell to 0.53% from August’s 0.65%—a fifth consecutive monthly decline.

On the political front, President Luiz Inácio Lula da Silva’s public approval rating dropped to a record-low 50% in September, while the administration’s approval also slid to a slim 35.8% amid an ongoing corruption scandal. Nevertheless, polls still show Lula will probably win reelection next year.

Antonio Guerrero