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Brazil launches $1.5 billion in 2025 bond, to buy back costlier notes

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(Globalpost/GlobalPost)

By Guillermo Parra-Bernal and Luciana Otoni

SAO PAULO/BRASILIA (Reuters) - Brazil on Wednesday launched $1.5 billion of new global bonds due in 2025 as it prepared to buy back a series of costlier notes maturing between 2017 and 2030, in a strategy to reduce government debt payments while making it cheaper for companies to access international capital markets.

The National Treasury announced the transaction at a time when investors' appetite for riskier assets is rising on bets that the U.S. Federal Reserve will delay scaling back its monetary stimulus.

The Fed's bond-buying program, which aims to hold down U.S. interest rates, has resulted in a steady source of dollars seeking higher returns in emerging markets.

While issuing a new bond with a lower coupon, the government will retire older bonds that do not help create "the best yield curve for Brazil," Treasury Secretary Arno Agustin told reporters in Brasilia.

Brazil's yield curve is a benchmark used by national companies to price their bonds abroad when they need to borrow money on international capital markets.

"The market is less volatile, calmer, and the (debt) issue also helps Brazil show its fundamentals," Agustin said.

The Treasury has unveiled a list of eight securities worth $12.8 billion that may be repurchased, though Agustin said the government does not intend to retire all of them.

Fund managers and a source with direct knowledge of the deal said the government also seeks to obtain cash flow relief by retiring bonds with higher coupons, such as the 12.75 percent bond due in January 2020, the 10.125 percent bond due in May 2027, and 12.25 percent bond due in March 2030.

The government has the option to repurchase the securities "in a selective manner," buying back those that have higher yields, said the source with direct knowledge of the deal, who declined to be quoted by name.

Still, some investors appeared to be willing to hold onto their high-coupon bonds.

"They need to offer holders an incentive -- investors love this high-coupon debt and it might be hard to convince them to let go," said Leonardo Kestelman, who manages about $920 million in debt for Dinosaur Merchant Bank in São Paulo.

The Treasury launched $1.5 billion worth of the new global bonds maturing in January 2025, three times the minimum benchmark size it intended to issue, according to sources.

The new bonds initially offered a yield about 200 basis points above yields paid by comparable U.S. Treasuries, but the Treasury later reduced that premium to 180 basis points.

The government hired investment-banking firms HSBC Securities, Bradesco BBI and Deutsche Bank Securities to handle the transaction.

(Additional reporting by Nestor Rebello in Brasilia; Writing by Walter Brandimarte; Editing by W Simon and Leslie Adler)

http://www.globalpost.com/dispatch/news/thomson-reuters/131023/brazil-launches-15-billion-2025-bond-buy-back-costlier-notes