Brazil's investment banks are focused on short-term debt, according to Bradesco BBI.

Brazil’s investment banks are focused on short-term debt, according to Bradesco BBI.

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SAO PAULO, Sep 16 (Reuters) – Brazil’s investment banks focused on debt issuance during the third quarter, an area that remained strong even with higher interest rates.

Felipe Tut, director of Bradesco BBI, an investment bank controlled by Banco Bradesco SA (BBDC4.SA), expects total local debt this year to reach about 430 billion reais ($83 billion). In the period from January to August, the emission increased by 30% compared to the same period last year. “The current amount of debt issued in real is roughly double the 2020 level, even at much higher interest rates than at the time,” Tut added.

According to industry group Anbima, domestic fixed-income bond issuance accounted for 96% of capital market activity in Brazil in August, even as Selic’s benchmark interest rate hit 13.75% from a record low of 2% in 2020. year.

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Dollar share issuance is down 53.5% this year, with M&A volume also down 31% from the same period a year ago, according to Refinitiv data. The uncertainty surrounding the presidential election is putting pressure on deals as well as the volatility of global interest rates.

Thut added that a large influx of local funds into fixed exchange portfolios is fueling demand for private debt. Fixed income funds received a net inflow of 309 billion reais ($59 billion) in the 18 months to July.

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

Tax-free bonds for infrastructure, real estate or agricultural enterprises have a lower value and were the first choice for companies, approaching 20 billion reais in the first five months of 2022.

The chief executive believes that the volume of equity issuances, especially initial public offerings, could pick up again once it becomes clear when the Brazilian central bank might start cutting interest rates. Brazil reported deflation last month as fuel prices fell. read more

So far this year there has been no IPO in Brazil, but there have been 18 additional offerings. There were 78 deals last year, including 46 IPOs, according to Refinitiv. Thut said Bradesco BBI will not make any changes to the team this year as the bank expects a recovery in the equity capital markets over the medium term.

(1 dollar = 5.2037 reais)

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Reporting by Tatyana Bauttser; Editing by Nick Zeminsky

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