(Bloomberg) — Brazil’s top capital-markets bankers are predicting a drop-off in local bond sales this year after a record 2024, as higher borrowing costs push companies to the sidelines.
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“Last year was enormous — the conditions were pretty good, spreads were tight — so companies took the opportunity and sold local bonds even when they didn’t need to,” Felipe Wilberg, head of fixed income and structured products at Banco Itau BBA, said in an interview. “So this year many of them don’t need to issue bonds and can wait.”
Companies issued 498.2 billion reais ($87 billion) in local bonds in Brazil last year, almost doubling the total in 2023, according to data compiled by Bloomberg. Itau was the No. 1 underwriter, with about 23% of the market.
Total issuance so far this year is down 29%, to 28.6 billion reais, compared with the same period last year, the data show, amid bigger spreads and shorter maturities.
“We already saw at the end of last year the difficulty of distributing some local bond transactions because of the economic deterioration and the outlook for higher interest rates,” said Marcelo Marangon, Citigroup Inc.’s chief executive officer for Brazil.
The central bank restarted a monetary tightening cycle in September, and has increased its key rate by almost three percentage points since then. In December, the dollar surged against the real and interest-rate futures climbed after the government’s cost-cutting plan failed to meet investors’ expectations.
Economists forecast Brazil’s gross domestic product will increase 2.1% this year, less than last year’s 3.3%. A weaker economic expansion may also change companies’ investment plans and need for funding.
In one example, sugar and ethanol maker Raizen SA, a joint-venture between Brazilian conglomerate Cosan SA and oil giant Shell Plc, is looking at potential asset sales and halting plans to build new plants in an effort to reduce debt after borrowing costs soared, Chief Executive Officer Nelson Gomes said during an earnings call Feb. 17.
Marangon expects that mergers and acquisitions and debt re-profiling will help boost Brazil’s global bond issuance, while Wilberg said the market will probably be stable this year compared with 2024.
Brazilian issuers from the nation sold $29.6 billion in international bonds last year, a 57% increase over 2023, and Citi was the No. 1 underwriter, according to data compiled by Bloomberg. So far this year, Brazilian companies and the government sold $11.7 billion in global bonds, 63% more than in the same period of 2024.
