Brazil's markets on standby

Brazil's markets on standby

Brazil Bonds Funds

Brazil's markets are stuck in standby after the latest political crisis delayed the government's reform efforts, but they have not come to a complete standstill.

"The capital markets are not stopping, and investors are starting to call us again," said a banker in Sao Paulo. "Some issuers stepped on the brakes, but we had the follow-on from BR Malls and the filing from Carrefour."

BR Malls raised BRL1.73bn ($531m) from an equity offering last week, just days after President Micheal Temer reportedly endorsed hush money payments for the former speaker of the house, Eduardo Cunha.

The mall operator sold the shares in the follow-on offering for BRL11 each. BR Mall's shares have since gone as high as BRL12.18 and closed at BRL12.12 on Friday, up 2.45% on the day.

Carrefour said it plans to list the subsidiary Atacadao on the local stock market in July. The French retailer acquired the wholesale hypermarket for BRL2.2bn in 2007.

"The market was not as scared as we expected," the banker said.

But not everyone followed through on plans to return to the equity market. Ser Educacional was looking to raise roughly $120m from a follow-on offering but it cancelled the deal last week, saying the share price did not reflect the company's expected profitability.

On the debt side, corporate issuers have postponed possible bond issues, both at home and in the cross-border markets, sources said.

"All the banks have stopped transactions and are repricing them," a CFO in Sao Paulo said about upcoming bond issues in the local market. "Issuers will now have to pay higher rates."

A second banker said the international bond markets have shut temporarily for Brazil's corporate issuers but he added that none of the big companies had a pressing need to raise financing or buy back existing notes.

Petrobras, for example, added $4bn to three bonds in the market just days before the scandal hit the headlines.

Other companies, such as high-yield and first-time issuers, will have to wait, but the government will not have to return with a benchmark bond to reopen the market for the private sector, the banker said.

"The crisis in Brazil is going to lead to repricing, which has already happened, but it's not going to close the market," he said.

Cemig finds itself in a more serious situation, with bank loans and bonds maturing this year, the banker said. The power company finished a roadshow earlier this month but decided to hold off on issuing a cross-border bond.

Cemig has not ruled out an international bond sale this year but it could also raise debt in the local capital markets.

"It's a name to watch closely but now it has missed its chance," the banker said.