Brazil sells $3.2 bln in 2025 bond, buying back costlier notes

Reuters

* Brazil sells twice as much of Global 2025 bond as inoriginal launch

* Treasury buying back $2 bln of high-coupon bonds

By Guillermo Parra-Bernal and Luciana Otoni

SAO PAULO/BRASILIA, Oct 23 (Reuters) - Brazil on Wednesdaysold about $3.2 billion of new global bonds due in 2025, morethan twice the original launch amount, as it paid the largestpremium over U.S. Treasuries for a similar maturity since 2009.

The National Treasury is also buying back about $2 billionof high-coupon notes maturing between 2017 and 2030, accordingto a source with direct knowledge of the transaction, in astrategy to reduce government debt payments and cheapencorporate credit.

The bond sale came as investors' appetite for riskier assetsis rising on bets that the U.S. Federal Reserve will delayscaling back its monetary stimulus.

The Fed's bond-buying program, which aims to hold down U.S.interest rates, has resulted in a steady source of dollarsseeking higher returns in emerging markets.

While issuing a new bond with a lower coupon, the governmentaims to retire older bonds that do not help create "the bestyield curve for Brazil," Treasury Secretary Arno Agustin toldreporters in Brasilia.

Brazil's yield curve is a benchmark used by nationalcompanies to price their bonds abroad when they need to borrowmoney on international capital markets.

"The market is less volatile, calmer, and the (debt) issuealso helps Brazil show its fundamentals," Agustin said.

The Treasury unveiled a list of eight securities worth $12.8billion that may be repurchased, though Agustin said thegovernment does not intend to retire all of them.

Fund managers and a source with direct knowledge of the dealsaid the government is also seeking cash flow relief by retiringbonds with higher coupons, such as the 12.75 percent bond due inJanuary 2020, the 10.125 percent bond due in May 2027, and 12.25percent bond due in March 2030.

The government has the option to repurchase the securities"in a selective manner," buying back those that have higheryields, said the source with direct knowledge of the deal, whodeclined to be quoted by name.

Still, some investors appeared willing to hold onto theirhigh-coupon bonds.

"They need to offer holders an incentive - investors lovethis high-coupon debt and it might be hard to convince them tolet go," said Leonardo Kestelman, who manages about $920 millionin debt for Dinosaur Merchant Bank in São Paulo.

The Treasury launched $1.5 billion worth of the new globalbonds maturing in January 2025, three times the minimumbenchmark size it intended to issue.

The new bonds initially offered a yield of about 200 basispoints above yields paid by comparable U.S. Treasuries, but theTreasury later reduced that premium to 180 basis points - itshighest spread over 10-year U.S. Treasuries since 2009.

The government hired investment-banking firms HSBCSecurities, Bradesco BBI and Deutsche Bank Securities to handlethe transaction.

The global debt notes up for repurchase are:

* January 2017

* January 2019

* October 2019

* January 2020

* April 2024

* February 2025

* May 2027

* March 2030

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