As Brazil continues to navigate itself out of one of the worst recessions in the country’s history, record volumes of agribusiness receivables certificates – or CRAs, as they are known colloquially – were issued in 2016. Investors and analysts believe the trend could continue in 2017 – especially with the industry’s first cross-border dollar denominated CRA in the offing.
Confronted with a struggling economy and constrained fiscal headroom, the Brazilian Development Bank (BNDES) has dramatically scaled back loan disbursements, leaving the private sector to pick up much of the slack. The development bank is also changing tactics in a bid to ensure projects that are vital to the country’s economy can still access important sources of revenue.
Brazil’s economic team has set itself the goal of reclaiming Brazil’s investment grade rating. Some believe, however, that the government should not give so much importance to the rating agencies. After all, they failed to predict the global crisis of the previous decade.
Sustainable energy and infrastructure projects across South and Central America are attracting attention from investors, but the outlook is challenged due to a lack of awareness on the ground.
Last year was difficult to say the least, more so than 2015, despite the slightly smaller contraction of GDP. The financial health of firms in the productive sector deteriorated further, with sharp increases in filings for court-supervised reorganization and nonperforming bank loans, both reaching record levels, while unemployment rose, especially affecting household heads. What’s in store for 2017?
Fibria, the world’s largest producer of eucalyptus pulp, got the timing just right when it priced a US$700mn senior unsecured green bond in January 2017, halving the company’s new issue premium and cementing its position as a leading sustainable finance practitioner in Brazil.
Emerging market debt took a significant hit after the surprising victory of Donald Trump last November, which was followed by a US interest rate hike weeks later. Concern over the President-Elect’s protectionist policies provoked capital outflows and a significant spike in borrowing costs for US-linked EMs, freezing almost US$10bn worth bonds that were supposed to be issued by Latin American corporations at the end of 2016. Those deals have come roaring back.
Brazil has spent too much time discussing macroeconomic policies – exchange rate, interest rate, fiscal policy. It was necessary for a long time, particularly when the country was suffering from stratospheric inflation, lack of fiscal control and grave external imbalance. Great advances have been made since the Real Plan (1994), but the debate over the economic direction of the country continues to lag.
As economic and political conditions begin to improve, Brazil’s economy still faces many challenges. But as Vernon H. Budinger, CEO of Latin America Structured Finance Advisors, argues in his analysis, the 2015/2016 credit crisis has peaked and now might be the perfect time to invest in Brazilian credit.
No crisis lasts forever. But the present one in Brazil is testing the patience of everyone. GDP has contracted now for seven straight quarters, after a 2014 that was largely lethargic in terms of output. Nor is there any discussion of an inflection point to a cyclical upturn in activity. The only thing on the horizon is economic stabilisation.
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