(Adds numbers of equity issues by Brazilian companies this year in ninth paragraph)
By Tatiana Bautzer
SAO PAULO, Sept 16 (Reuters) - Investment banks in Brazil are focusing on debt issuance through the third quarter, an area that kept strong activity even with higher interest rates.
Felipe Thut, director at Bradesco BBI, the investment bank controlled by Banco Bradesco SA, expects total local debt issuance to reach around 430 billion reais ($83 billion) this year. Between January and August, issuance rose 30% over the same period last year. "The current volume of debt issued in reais is around double of 2020 levels, even with much higher interest rates than we had at the time", Thut added.
Local fixed income issues represented 96% of capital markets activity in Brazil in August, according to industry group Anbima, even as benchmark interest rate Selic reached 13.75%, up from a record low of 2% in 2020.
Equity issuance volume is down 53.5% in dollars this year and M&A deals volume is also 31% lower than the same period a year ago, according to Refinitiv data. Uncertainties related to the presidential election are weighing on deals, as well as volatility in global interest rates.
Large local inflows into fixed exchange portfolios are fueling demand for private debt, Thut added. Fixed income funds received net inflows of 309 billion reais ($59 billion) in the 18 months through July.
Another factor is this year's growth higher than expected, making companies issue debt to finance expansion, Thut said.
Tax-exempt bonds for infrastructure, real estate or agriculture businesses have lower costs and have been the first choice for companies, approaching 20 billion reais in the first five months of 2022.
The executive believes the volume of equity issues, specially initial public offerings, may rise again once it becomes clear when the Brazilian central bank may begin to reduce interest rates. Brazil posted deflation last month as fuel prices fell.
So far this year, there were no IPOs in Brazil, but 18 follow-on offerings. Last year there were 78 transactions, including 46 IPOs, according to Refinitiv data. Thut said Bradesco BBI will not make any changes in the team this year, as the bank expects a recovery on equity capital markets on the medium term.
($1 = 5.2037 reais) (Reporting by Tatiana Bautzer; Editing by Nick Zieminski)