Mantega: Central bank reserves will not be used for wealth fund.
After years of speculation over when and if Brazil would achieve a coveted investment-grade rating, the move finally caught almost everyone by surprise. Standard & Poor’s upgraded Brazil’s long-term foreign currency rating to BBB- from B+ on April 29, just ahead of the May 1 holiday. It also upped the local currency rating from BB+ to BBB. Although many analysts had contended the upgrade was overdue, others predicted a decision was not likely before year-end or even early 2009.
With the upgrade lowering borrowing costs, Brazil sold $500 million in bonds in early May, reopening a deal launched in November 2006. The bonds, which mature in 2017, were priced to yield 6.25% when they were initially offered in 2006, dropping to 5.89% at an April 2007 reopening. May’s reopening, managed by Deutsche Bank and HSBC, yields a lower 5.3%. Corporate borrowers also hope to take advantage of the drop in bond spreads after the ratings action. Petrochemicals giant Braskem expects to raise up to $1.2 billion in coming months. Banks are in talks with other issuers to bring deals to market.
Brazil plans to funnel increased tax revenues, which rose by 13% in April, into a sovereign wealth fund that will help absorb excess dollar liquidity. The new fund could be launched in June with some $20 billion. Finance minister Guido Mantega says the government will not use any of the central bank’s $195 billion in international reserves for the fund.