Emerging Markets : Robust Economy Fuels Bond Blitz


The Brazilian government continued to tap global markets, despite questions regarding the outcome of the nation’s presidential elections, as investor appetite remained high. The sovereign tapped international markets on October 5, even before the second-round vote, with an additional $300 million worth of real-denominated bonds maturing in 2022.

The latest sovereign issue, which is the longest-dated real-denominated fixed-rate paper to date, offered a 12.5% coupon and was priced to yield 12.47%. This was an improvement over the 12.88% yield on the $750 million local currency issue sold to international buyers on September 6. The deals were led by Merrill Lynch and UBS.

Petrobras, the state-owned oil company, ended a decade-long absence from Japanese markets with a 35 billion samurai issue in late September, arranged by Mitsubishi and Nomura. The 10-year bonds carry a partial guarantee from the Japan Bank for International Cooperation. Petrobras has expressed interest in acquiring an oil refinery in Okinawa from ExxonMobil and Sumitomo to process Brazilian crude for distribution in Asia.

Brazil’s trade surplus rose to $12.5 billion in September, bringing the surplus from January through September to $34 billion. Exports during the nine-month period rose 16% year-on-year to $100.7 billion, while imports rose 23% to $66.7 billion. Analysts predict a 2006 surplus of $43 billion, despite a stronger real that is slowing exports. The strong currency led the central bank to cut its 2006 GDP growth forecast to 3.5% from 4%. The IMF predicts 3.6% GDP growth for 2006 and 4% for 2007.

Brazils improving economic fortunes are helping fuel deals in the corporate sector. Mexico’s Telmex telecommunications giant launched an offer to acquire all remaining shares in Brazilian local phone company Embratel, including ADRs, to boost its stake to 100% from a current 97%. Germany’s ThyssenKrupp steelmaker broke ground on a $3.6 billion steel plant in Rio de Janeiro state, which will produce 5 million tons of flat steel a year for export beginning in 2009. Credit Suisse is reportedly in talks to acquire Brazilian investment bank Hedging-Griffo, which has an estimated $6.6 billion under management, for some $400 million.

Antonio Guerrero