Local debt market poised to become viable funding source again

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.

Felipe Wilberg

Experts who structure debt sales expect the pace to continue strong for tax-exempt securities, meant for individual investors, and to improve for corporate debt, focus of institutional investors. “The year will begin strong, especially for tax-exempt securities. Our expectation is that we will have maintenance or marginal growth in the issuance of certificates of agribusiness receivables [CRAs] and we have a long pipeline of infrastructure bonds, especially for the power industry,” says Joel Schimchak, head of debt issuance at Santander.

Treasury expects Brazil to regain investment grade in 2018

National Treasury Secretary Ana Paula Vescovi says that recovering Brazil's investment grade rating is possible and viable as soon as 2018. The secretary was presenting the Annual Financing Plan (PAF) for 2017 and admitted the fiscal scenario is still adverse for this year despite improvements since the change of government last May.

BNDES offers R$13bn to accelerate recovery

Maria Silvia Bastos Marques

The Brazilian Development Bank (BNDES) will take an unprecedented role as provider of working capital to Brazilian companies. Through December 31, the bank will make R$13 billion available in its BNDES Progeren line, to bolster the capacity of creating jobs and income, of which R$5 billion will be offered directly, something that so far had never occurred in a broad way, and R$8 billion through financial agents.

The offering of working capital without the intermediation of agents is part of the new operational policies BNDES announced Thursday in the biggest revamp of the bank’s financing terms in nearly a decade. The last change was made nine years ago.

Copom forecasts below-target inflation in mid-2017

If Central Bank forecasts are right, inflation will fall below the target of 4.5% in the middle of this year, something that hasn’t happened since 2009. It will be a temporary fluctuation of the price index, absolutely normal in inflation-targeting regimes, but enough to fuel accusations of monetary policymaking overreach.

According to forecasts presented by the Central Bank’s Monetary Policy Committee (Copom) in the December Inflation Report, the Extended Consumer Price Index (IPCA) could reach 4.1% in the 12-month period ending in September. By the end of the year, inflation will rise to 4.7%.

Brazil forecast to post US$43bn trade surplus in 2017

Brazil is forecast to post another trade surplus in 2017. Twenty-two experts consulted by ValorData forecast an average surplus of US$43.5 billion that if confirmed will represent a US$100 billion surplus in two years that will help keep the foreign account deficit under control next year. The good results this year and optimistic expectations for 2017 are due to the widespread rise in the price of Brazil’s main commodity exports. Iron showed the most surprising behavior, rising 86% this year. Five of the eight top agricultural commodities produced by Brazil ended the year at higher levels than last year, because of supply and demand fundamentals that should continue having an effect in 2017. Sugar is one example, having finished the year at the highest price in New York since 2012.

Treasury further reduces deferred expenditures

The federal government will spend R$15 billion to R$20 billion in December to further lower the level of deferred expenditures ("restos a pagar"). Officials plan to spend a total of R$73.5 billion this year paying expenditures created in previous years but still not covered. The central government is forecast to post a R$170.5 billion deficit, as targeted by the Treasury, the Central Bank and the Social Security prgram. “We spent a lot of time discussing whether the target would be achieved. Now our conditions to meet the target are very clear,” Treasury Secretary Ana Paula Vescovi told Valor.

Treasury will reward fiscally responsible states and municipalities

The National Treasury will hold public hearings starting this week on a new rating system for states and municipalities, which will reward those that carried out reforms to improve their long-term fiscal situation.

The Treasury secretary, Ana Paula Vescovi, told Valor that the consultation will last one month and the rule will come into force already in 2017. She advanced that the Treasury will offer guarantees to as much as R$17 billion in loans and also authorize R$3 billion more in unsecured loans to the local governments.