The local debt market is likely to show growth in 2017 and become a source of funding for companies again, after last year’s drought. With falling interest rates, companies begin to see positive effects both on their debt cost and in their bottom lines and banks start lending to smaller and riskier businesses.
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| Felipe Wilberg |
Debt issuance had already picked up late last year. The last quarter concentrated 40% of the entire year’s debt sales, totaling R$39.5 billion. “We are feeling, especially since the last two months of last year, a more positive view regarding corporate debt,” confirms Bruno Toca, partner of capital markets at law firm Mattos Filho.
A BTG Pactual study conducted by strategist Carlos Sequeira gives a view of how conditions are improving for companies. In a sensitivity analysis, the bank found that the effect of the rate decline in corporate earnings can be huge and that mall operators, construction companies, infrastructure firms, highway concessionaires and highly indebted companies in general are the ones that can benefit the most.
According to the analysis, retailer Marisa, for example, may have a 60% boost in earnings for each 100-basis-point cut of the interest rate. Steelmaker CSN would have a 43% gain and Restoque, a fashion retailer, would gain 31%. B2W, Via Varejo, Pão de Açúcar and Magazine Luiza are other retailers that would have an improvement of more than 20% at each reduction of 100 basis points.
Another positive effect is in the funding cost, which may fall more than 600 to 700 basis points. Mr. Sequeira says high-quality companies like CCR, an infrastructure operator, saw their financing cost rise 500 basis points in early 2016. A year ago, the company paid in a bond issue 124.1% of the CDI market benchmark rate, which was at 14.25%, leading the cost for the company to 17.7%. In 2013, CCR had issued a similar bond paying 107% of CDI, or 12.5%. Hypothetically, if CCR issued a new debt at the end of 2017 paying 110% of CDI, back to the 2013 levels, this would mean a yield of 11%, or 670 basis points less than in early 2016.
Amid this environment, banks see a lot of activity in this market. Only for tax-exempt securities, an investment bank estimates a R$7 billion pipeline in the first quarter. Among offerings under way that have already become public there are at least R$5 billion to be issued in the coming months, with highlights being a R$2 billion bond from Telefônica, a R$800 million infrastructure-bond issue from AutoBan, a R$260 million CRA offering from VLI Multimodal.
Despite the greater potential, the first months end up being a little slower because of the earnings season and the following months should better set the tone for the year. “The windows to issue in the beginning of the year are smaller. We need to settle the operation before the earnings release and there’s the carnival holiday in the middle. The offerings take time to reach the market,” says Felipe Wilberg, head of debt capital markets at Itaú BBA.
Despite the greater potential, the first months end up being a little slower because of the earnings season and the following months should better set the tone for the year. “The windows to issue in the beginning of the year are smaller. We need to settle the operation before the earnings release and there’s the carnival holiday in the middle. The offerings take time to reach the market,” says Felipe Wilberg, head of debt capital markets at Itaú BBA.
“In tax-exempt securities, we had a strong fourth quarter, reaching practically the volume of issues of the rest of last year. Clearly investors began to like CRAs, are familiarized with the companies coming to market for the second or third time,” Mr. Wilberg says. “In a scenario of falling rates, we see many investors seeking better rate and with appetite for longer-term securities.”
Mr. Tuca, with Mattos Filho, points out also the increase in banks’ interest in debt that they sit on and are booked in their balance sheet. “We begin to see more transactions of relevant values for private-sector companies. I’ve heard from many medium-sized companies that credit and working-capital facilities had diminished greatly, and now this is getting better again,” he says.
“If credit conditions are ready to significant improve for big issuers, listed and well-known, the positive impact for small and medium-sized and more leveraged companies may be huge,” BTG’s Mr. Sequeira says.
Jan 30 2017 By | São Paulo valor.com.br
