Bloomberg News
Petrobras Probe Seen Infecting Brazil Bond Market in 2015
Underwriters of Brazil’s corporate bonds, including JPMorgan Chase & Co. and Citigroup Inc., are heading into 2015 with diminished expectations.
Petroleo Brasileiro SA, the national oil company that accounted for 35 percent of corporate issuance out of Brazil in 2014, says it doesn’t plan to sell bonds next year. Some companies may be ensnared by a widening bribery investigation into the oil producer, according to JPMorgan. Borrowing costs that surged to a five-year high this month may also deter first-time issuers, Citigroup predicts.
After a record $33 billion of first-half issuance in 2014, bond sales from Brazil all but stopped. In the last six months, companies raised just $5.8 billion, the least since the credit crisis. The underwriters anticipate bond sales to remain depressed in the new year as Brazil struggles to emerge from a recession that’s pushed its credit rating to the cusp of junk.
“It wasn’t a great end of the year,” said Ricardo Leoni, the head of Brazilian debt capital markets at New York-based JPMorgan, the nation’s fourth-biggest underwriter of corporate-bond sales. “There’s no clear sign of a resolution” to the corruption probe, which may weigh on companies wanting to sell debt, he said by telephone from Sao Paulo.
Petrobras’s press office said by e-mail that the company doesn’t intend to issue debt in 2015.
Biggest Issuer
The oil producer has been the biggest corporate bond issuer in emerging markets over the past four years, according to data compiled by Bloomberg. It has raised $44.9 billion since 2011, 10 percent more than the amount sold during that span by Mexico’s state oil company, Petroleos Mexicanos.
Petrobras said Dec. 12 that it’s cutting investments and operating costs to avoid the need to raise cash. The Rio de Janeiro-based company sold $5.1 billion of debt denominated in euros and pounds in the second week of January. In March, it sold $8.5 billion of notes.
In the bond market, borrowing costs for Brazilian companies have increased 0.3 percentage point this year to 7.08 percent, versus an average decline of 0.1 percentage point for emerging markets, index data compiled by JPMorgan show. The yield for Brazilian issuers touched 7.7 percent this month, the highest since June 2009.
New-Issue Premium
“New-issue premium for emerging-market countries, and for Brazil specifically, is higher now, and that should prevail in the coming months,” Eduardo Freitas, the co-head of debt capital markets at the Brazil unit of Citigroup, said by telephone from Sao Paulo. “If you don’t have a real need for it, you won’t be the first one to jump in and find out what the pricing levels are like.”
Citigroup was the fifth-largest underwriter of Brazilian corporate bond sales this year, data compiled by Bloomberg show. The three biggest underwriters, Banco do Brasil SA, HSBC Holdings Plc and Banco Bradesco SA, declined to comment.
For 2014, Brazilian companies have sold $38.8 billion of bonds internationally. While that’s more than last year’s $33.3 billion, it’s less than the record $46 billion sold in 2012. Globally, corporate bond sales reached a record of more than $4 trillion this year.
Scrapped Sales
JBS SA, the world’s biggest meat producer, pulled a debt sale Dec. 8, citing market conditions. Competitor Marfrig Global Foods SA scrapped a bond offering Nov. 19, saying yields demanded by investors didn’t meet its target. Cosan SA Industria e Comercio and Comgas Participacoes SA also canceled a debt sale this month, according to a person familiar with the matter who asked not to be identified because the information is private.
Standard & Poor’s cut Brazil in March to BBB-, one level above junk, saying sluggish economic growth and an expansionary fiscal policy were fueling an increase in the country’s debt levels. Brazil entered a recession in the first half of the year, and grew 0.1 percent in the third quarter, missing the median estimate of 0.2 percent from 46 analysts surveyed by Bloomberg.
Prosecutors have accused at least 30 people of corruption and money laundering in the Petrobras investigation known as Car Wash. The case is far from over, Prosecutor General Rodrigo Janot said at a Dec. 11 briefing.
The next day, Petrobras delayed releasing third-quarter financial results for a second time while it investigates new witness statements. The oil producer must report unaudited results by the end of January to avoid violating agreements on some bonds, which may prompt creditors to demand their money back, it said in a statement.
“Many companies will face difficulties in accessing markets and selling new debt,” Carolina Lacerda, the head of investment banking at UBS AG’s Brazil unit and a director at Anbima, the nation’s capital markets association, said in a conference call this month. “We don’t know if we have seen the bottom of this Pandora’s box yet.”
To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net Bradley Keoun
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