Geopolitical tension seen boosting Brazil corporate bond sales

[July 25, 2014]  By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO (Reuters) - Geopolitical tension driving investors away from Eastern European countries could give a boost to bond offerings from Brazilian companies starting in September, a senior banker said on Friday.

The search for high yields and duration gained traction following the Brazilian government's $3.5 billion bond offering on Wednesday, with investors growing confident that interest rates in the United States will stand pat for a few more months, said Max Volkov, Bank of America Merrill Lynch's head of Latin America debt capital markets.

The pipeline for potential debt offerings among Brazilian companies is robust, and demand for paper could remain healthy as problems involving countries such as Russia continue to drive investors toward Latin America, Volkov noted. Brazil's deteriorating growth and public finances picture is not worrying investors so far, he noted.

"Investors are beginning to perceive that Brazilian names are undervalued," Volkov said in a phone interview from New York. He did not comment on Bank of America Merrill Lynch's <BAC.N> business pipeline for Brazilian companies.
 

Speculation that the U.S. Federal Reserve will gradually tighten its monetary policy, and a flight-to-safety drive on concerns about growing unrest between Ukraine and Russia and in the Middle East, has emerging market investors putting their money to work in places like Brazil for a longer period.

The Brazilian government bond deal emerged as a result of those factors, Volkov explained, allowing the government to print the lowest coupon interest rate for a 30-year bond issue ever. Bids from U.S. and European investors accounted for 91 percent of the deal, with the rest coming from Brazilian and Latin American investors, he added.

"This shows that investors don't want to exit Brazil. They are just modifying their exposure," Volkov said.

Brazilian companies, including banks, have raised almost $27 billion in global bond markets through July 20, with sales of corporate bonds totaling about $59 billion for Latin America in the same period, according to Thomson Reuters data.

After a relatively slow start to the year, Brazilian companies accelerated offerings of dollar-denominated debt in global markets right after the problems between Russia and Ukraine arose. Since early June, 10 Brazilian companies and the government tapped markets - a sign that investors want to buy Brazil debt, Volkov said.

"I haven't seen the market that good since May last year," he added.

(Reporting by Guillermo Parra-Bernal; Editing by Bernard Orr)

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