© Reuters

By Tatiana Bautzer

SAO PAULO (Reuters) – Brazilian investment banks focused on debt issuance throughout the third quarter, an area that maintained strong activity even with higher interest rates.

Felipe Thut, director of Bradesco BBI, the investment bank controlled by Banco Bradesco SA, expects total local debt issuance to reach around 430 billion reais ($83 billion) this year. Between January and August, emissions increased by 30% compared to the same period last year. “The current volume of debt issued in reais is about double 2020 levels, even with much higher interest rates than we had back then,” Thut added.

Local issuance of fixed income securities accounted for 96% of capital markets activity in Brazil in August, according to industry group Anbima, even as the Selic benchmark interest rate hit 13.75%, against a record low of 2% in 2020.

Equity issuance volume is down 53.5% in dollar terms this year and M&A deal volume is also 31% lower than the same period a year ago, according to Refinitiv data. . Uncertainties related to the presidential election weigh on transactions, as well as the volatility of global interest rates.

Large local inflows into fixed-exchange portfolios are fueling demand for private debt, Thut added. Fixed-income funds received net inflows of 309 billion reais ($59 billion) in the 18 months to July.

Another factor is this year’s higher-than-expected growth, forcing companies to issue debt to fund expansion, Thut said.

Tax-exempt bonds for infrastructure, real estate or agricultural businesses have lower costs and have been the top choice for companies, approaching R$20 billion in the first five months of 2022.

The executive believes that the volume of equity issuances, especially initial public offerings, could rise again once it becomes clear when Brazil’s central bank might start cutting interest rates. Brazil recorded deflation last month as fuel prices fell.

So far this year, there have been no IPOs in Brazil, but 18 follow-up offerings. Last year, there were 78 deals, including 46 IPOs, according to Refinitiv data. Thut said Bradesco BBI would not make any changes to the team this year as the bank expects equity markets to recover in the medium term.

($1 = 5.2037 reais)