World Cup Mantega Push to Strengthen Local Bond Market

Brazil's local corporate bond market is not providing the necessary funding to help pay the 955 billion reais (562 billion) for infrastructure projects, prompting the government to accelerate reforms to extend credit.

Companies in Latin America's largest economy raised 41 billion reais this year in the local bond market, up 48 percent from the year 2009, according to the Brazilian capital markets known as Anbima. The emission lags behind Russia's 27 billion and 163 billion U.S. dollars China. Only India, at $ 18 billion, has fewer than corporate debt issuance between the largest developing economies, or BRIC.

The Finance Minister Guido Mantega, who shall hold office under President-elect, Dilma Rousseff, is set to raise awareness of measures today to lower borrowing costs and increase long-term financing. The government plans to cut funding of the state development bank by 50 percent next year to wean companies subsidized loans and reduce the world's second highest interest rates adjusted for inflation. Brazil is to increase spending on infrastructure as it prepares to host the 2014 World Cup and the Olympic Games in 2016.

"Brazil needs large infrastructure investments, and the government has been noted a reduction in state funding," said Augusto Lauro Campos, superintendent of credit analysis SulAmerica Investimentos in Sao Paulo, which manages $ 10 billion of assets. "There could be a migration to the capital markets, encouraging capital markets through bond."

"Financial Modernization"

Mantega may announce a number of "financial modernization" measures today intended to stimulate long-term debt, investment in infrastructure and housing finance and construction, according to a person familiar with the matter who declined to be identified because he was not authorized to speak publicly.

Ramiro Alves, Minister of Finance official press in Brasilia, did not respond to an e-mail request seeking comment.

Rousseff reduce government offered loans to BNDES development bank as the state is known, from 104.7 billion reais in 2010, Mantega said 30 November. Bank lending, which provides subsidized loans for long-term projects, is helping to push inflation to 5.63 percent, the highest since February.

BNDES, with headquarters in Rio de Janeiro, gave 171 billion reais of new loans in the 12 months through October, a jump of 33 percent over the same period last year, according to the website of the bank. BNDES loans more than doubled to Brazilian companies to 137.4 billion reais last year, up from 72.2 billion U.S. dollars worldwide provided by the World Bank in the fiscal year ended in June.

Interest Rates

The yields of future interest rates indicate traders are betting the central bank will raise the benchmark rate by 25 basis points, or 0.25 percentage points to 11 percent in January. adjusted for inflation rates in Brazil are second to Croatia from 46 countries tracked by us.

"We're going to have new credit instruments," said Mantega in an interview with Globo TV News last month. "It will be easier for the private sector to borrow more. The private sector will have a stronger ability to make long-term loans, BNDES replacement."

The government is betting on new measures and the reduction in BNDES financing will boost the country's capital market local SulAmérica Campos said.

A new rule that allowed companies to sell debt more quickly through private sales rather than public offerings helped drive up bonuses this year. These offerings 54 percent of sales to private credit in 2010, compared to 46 percent through November last year, according to headquarters in Sao Paulo Anbima. The average maturity of domestic corporate bonds rose to about five years from four years in 2010, the data show Anbima.

'Big improvement'

"This is a big improvement is from 2009," said John de Biase, director of capital markets debt Itau Holding Unibanco SA, Brazil's largest bank by market value. "The entire spectrum of debt instruments will increase from year to year, or at least the next five years," he said in a telephone interview from Sao Paulo.

The government must find ways to increase trade in the local market, currently dominated by a small group of pension funds, Biase said.

Even with the new measures, firms still need to borrow from the state development bank, said Huang Kuo seen, a hedge fund manager in the Grau Gestao of Ativan, which manages 250 million reais in Sao Paulo.

The measures "will complement" seen in a telephone interview. "Change is difficult. It's easier when an established company with an established project long term. The market will continue to need the BNDES."

Yield spread

Brazilian companies sold a record $ 38.7 billion of bonds overseas this year, up 74 percent from 2009, as near-zero interest rates in the U.S. and Europe caused the demand for emerging market assets increased performance.

The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries widened 2 basis points to 168 at 6:19 am New York time, according to JPMorgan Chase & Co.

The cost of protecting Brazil's bonds against default for five years has changed little in 111, according to CMA prices. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

Yields on Brazil's overnight rate for futures contracts in January 2012 rose 1 basis point to 11.84 percent.

The real fell 0.1 percent to 1.6989 per U.S. dollar.

The government infrastructure R 955 billion spending plan will encourage investment in urban transport, sewerage, housing and electricity and water distribution.

"There will come a time when the banks, together with BNDES, will not be able to provide 100 percent debt required for these new infrastructure projects in Brazil, Itaú Biase said. "At this point, you need to bring more money into these projects."