Banco Itau BBA SA, Brazil’s top investment bank so far this year, expects the nation’s capital markets to rebound in coming months after a weak first half.
(Bloomberg) — Banco Itau BBA SA, Brazil’s top investment bank so far this year, expects the nation’s capital markets to rebound in coming months after a weak first half.
“We are starting to see more transactions where the use of proceeds is to fund growth and new investments,” Cristiano Guimaraes, head of global corporate and investment banking at Itau BBA, said in an interview.
That’s a departure from earlier in the year, when the only deals coming to market were forced by shareholders needing to sell or companies trying to deleverage, Guimaraes said.
Rising interest rates in Brazil stymied new issuance last year and in the first six months of 2023, but prospects for falling borrowing costs are starting to revive stock and bond sales.
Equity offerings from Brazilian companies total 18 billion reais ($3.7 billion) so far this year, two-thirds below the 2022 level, while local corporate bond sales are down 39% to 84.9 billion reais, according to data complied by Bloomberg.
Global bond issuance, on the other hand, is up 31% to $7.3 billion.
Itau, which snagged Dealogic’s No. 1 ranking for first-half fee revenue, helped Brazilian car-rental company Localiza Rent a Car SA raise about 4.5 billion reais in a share offering last month.
Proceeds will be used for growth, including the expansion of Localiza’s fleet. And in another hopeful sign for the market, Direcional Engenharia SA said Friday it raised 428.9 million reais in a share offering to be used for “growth and capital structure improvement.”
“As soon as the market realized that interest rates were going to drop, we started to see a strong pickup in offerings,” said Roderick Greenlees, global head of investment banking at Itau BBA.
He estimates that Brazilian companies will offer as many as 50 share sales this year, including block trades. Last year, that number reached only 31, data compiled by Bloomberg show.
Deals that offer investors a tax exemption are especially hot right now, said Guilherme Albuquerque de Maranhao, head of fixed-income sales and structuring at Itau BBA.
One example is Igua Saneamento SA, which announced on June 26 the sale of 3.8 billion reais in local infrastructure bonds that feature tax incentives.
The 2 billion-real tranche attracted demand 1.6 times bigger than the offering, according to the company.
“Those oversubscribed deals show investor appetite is returning,” Maranhao said. He predicts local corporate bond deals will reach around 120 billion reais, still down from the roughly 200 billion reais that came last year.
Brazil’s sovereign rating outlook was revised to positive from stable by S&P Global Ratings last month, and Maranhao said that’s also helping to boost capital-markets transactions, particularly for international bonds.
Total fees from advising on mergers and acquisitions and underwriting stocks and bonds in Brazil reached $291 million in the first half of this year, down 40% from the same period last year, according to Dealogic.
Itau BBA’s stake was 14.3%, up from 12.1% last year.
Even with the improved outlook for the second half of the year, Guimaraes said the total fee pool for investment banking in Brazil will probably fall about 25% from last year.
“It will be difficult to catch up,” he said.
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