Brazil targets foreign bond investors
By Vincent BevinsPublished: December 16 2010 18:42
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Brazil has unveiled a series of measures designed to attract foreign money into its corporate bond market. The move is designed to reduce the role of state banks, which have dominated lending in South America’s biggest economy.
Brazil needs to invest hundreds of billions of dollars to improve its dilapidated infrastructure, especially ahead of the 2014 World Cup and 2016 Olympics in Rio de Janeiro. But an overabundance of capital inflows have lately proved a headache for policymakers, who have raised a tax on bond inflows to 6 per cent in an attempt to curb the appreciation of the Brazilian currency, the real.
“Big projects have come back. Brazil now has projects that require financing for 20, 25, 30 years. It was necessary to take measures to make this long-term credit viable,” said Guido Mantega, Brazilian finance minister, when he unveiled the measures late on Wednesday.
A central aim of the measures is to deepen Brazil’s currently illiquid corporate bond market, and so take the strain off lending by state-owned development bank BNDES, which has been the main source of long-term corporate credit.
This year alone, the government has recapitalised BNDES to the tune of R$146bn ($86bn) to keep long-term credit flowing.
Outgoing central bank president Henrique Meirelles said the new measures were a “step in the right direction” to stimulate long-term credit. This year, Brazilian corporates issued about R$41bn of bonds, compared with $27bn by Russian companies, and $163bn by Chinese corporates. BNDES president Luciano Coutinho said the new rules could boost Brazilian corporate issuance to R$70bn in the coming year.
The measures are not yet fully elaborated, and will take time to have any effect. Nonetheless, analysts cheered the move. “These measures are likely to create and open up a whole new asset class for foreign investors, who up to now have been basically segregated to buying equities or government bonds,” said Tony Volpon of Nomura securities.
“Corporate bond buyers could now invest in Brazil.”
Brazil has unveiled a series of measures designed to attract foreign money into its corporate bond market. The move is designed to reduce the role of state banks, which have dominated lending in South America’s biggest economy.
Brazil needs to invest hundreds of billions of dollars to improve its dilapidated infrastructure, especially ahead of the 2014 World Cup and 2016 Olympics in Rio de Janeiro. But an overabundance of capital inflows have lately proved a headache for policymakers, who have raised a tax on bond inflows to 6 per cent in an attempt to curb the appreciation of the Brazilian currency, the real.
Under the new measures, foreigners will no longer pay income tax on corporate bonds with maturities longer than four years – putting corporate debt on the same tax footing currently enjoyed by government debt investors. Certain types of private equity financing will also pay a reduced 2 per cent tax, instead of 6 per cent currently, as part of incentives to boost infrastructure project finance.
“Big projects have come back. Brazil now has projects that require financing for 20, 25, 30 years. It was necessary to take measures to make this long-term credit viable,” said Guido Mantega, Brazilian finance minister, when he unveiled the measures late on Wednesday.
A central aim of the measures is to deepen Brazil’s currently illiquid corporate bond market, and so take the strain off lending by state-owned development bank BNDES, which has been the main source of long-term corporate credit.
This year alone, the government has recapitalised BNDES to the tune of R$146bn ($86bn) to keep long-term credit flowing.
Outgoing central bank president Henrique Meirelles said the new measures were a “step in the right direction” to stimulate long-term credit. This year, Brazilian corporates issued about R$41bn of bonds, compared with $27bn by Russian companies, and $163bn by Chinese corporates. BNDES president Luciano Coutinho said the new rules could boost Brazilian corporate issuance to R$70bn in the coming year.
The measures are not yet fully elaborated, and will take time to have any effect. Nonetheless, analysts cheered the move. “These measures are likely to create and open up a whole new asset class for foreign investors, who up to now have been basically segregated to buying equities or government bonds,” said Tony Volpon of Nomura securities.
“Corporate bond buyers could now invest in Brazil.”
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Copyright The Financial Times Limited 2010.
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