Bloomberg News

Wall Street Hegemony Broken as Esteves Taps Andes: Brazil Credit

March 04, 2013

Wall Street Hegemony Broken as Esteves Taps Andes

Andre Esteves, chief executive officer of Banco BTG Pactual SA. Photographer: Jin Lee/Bloomberg

Brazilian lenders that didn’t underwrite a single overseas bond sale from the country five years ago won a third of all mandates in 2012. Now they’re staking a claim to the rest of Latin America.

Led by billionaire Andre Esteves’s Grupo BTG Pactual, the nation’s banks have managed $388 million in dollar-denominated debt offerings for non-Brazilian companies this year, already three-quarters the total in all of 2012. BTG has managed three sales this year after underwriting just one in 2012, when non- Latin American securities firms handled 99 percent of deals in the region outside Brazil.

Brazil’s biggest investment banks are fighting to boost their share of the $62 billion market for debt underwriting beyond the nation’s borders as the slowest economic growth in a decade damps international issuance at home. BTG and Itau Unibanco Holding SA (ITUB4) are winning business in faster-growing Chile, Peru and Colombia, where Citigroup Inc., JPMorgan Chase & Co. and Deutsche Bank AG dominate underwriting. Last year, BTG acquired Celfin Capital SA in Chile and Colombia’s Bolsa y Renta SA as it pushes deeper into the Andes region.

“Those are countries that are growing, they are countries investors want to be in,” Sandy Severino, BTG’s head of debt capital markets, said in a telephone interview from New York. “What we’re finding is a lot of clients like the idea of having a local Latin America bank at their side, just like we’ve seen in Brazil.”

Top Underwriters

Chile’s economy is estimated to have grown 5.6 percent in 2012 as Colombia expanded 4.4 percent, according to the median estimates of analysts surveyed by Bloomberg. Peru last month reported that 2012 gross domestic product rose 6.3 percent while Brazil on March 1 said 2012 GDP expanded 0.9 percent.

Average borrowing costs for Latin American companies have plunged 0.83 percentage points in the past year to 4.97 percent, more than the 0.56 percentage point decline for Brazilian corporate bonds that now pay an average 4.72 percent, according to Credit Suisse Group AG index data.

Brazilian banks managed 30 percent of all overseas deals from the country in 2012, after arranging none for clients just five years earlier. BTG, Itau, Banco do Brasil SA (BBAS3) and Banco Bradesco SA (BBDC4) were all among the top 10 underwriters of global bond sales from the country last year, according to data compiled by Bloomberg.

Issuance from Latin America’s largest economy totaled $51 billion in 2012, or about 45 percent of all overseas bonds sales from the region. Year-to-date, Brazilian debt sales have accounted for just 28 percent of offerings, the data show, as investment-grade companies delay capital spending in the face of plunging growth forecasts.

Colombia, Peru

International issuance from high-grade companies in Brazil will fall this year as more borrowers turn to the local market to obtain financing, according to Joao de Biase, the head of debt capital markets and syndication at Itau. Total overseas sales will be about the same as last year as more junk-rated issuers fill the gap, he said.

As Chile, Colombia and Peru grow faster than Brazil, international offerings from the countries will increase, de Biase said in an interview at Itau’s offices in Sao Paulo. The lender invested 395 million reais ($200 million) in October in a new office in Bogota, and is considering opening investment banks in Mexico in 2013 and in Peru in 2014.

‘Need to Diversify’

“We have seen more deals coming out of these countries than Brazil,” de Biase said. “They are growing more than Brazil, their spreads are also low, and people need to diversify, so it’s a combination of things.”

Itau, Latin America’s largest bank by market value, helped manage deals from Chilean retailer Cencosud SA and pulp producer Celulosa Arauco y Constitucion SA last year, according to data compiled by Bloomberg.

BTG, Brazil’s top generator of investment-banking fees in 2012, underwrote sales this year from non-Brazilian companies including retailer SMU SA, oil producer GeoPark Holdings Ltd. and fishmeal maker Copeinca ASA, Bloomberg data show.

The bank acquired Bolsa y Renta, Colombia’s biggest brokerage by trading volume, in June for $52 million, four months after agreeing to buy Celfin, the biggest brokerage in Chile and the third-largest in Peru, for $486 million. BTG is also expanding equity and fixed-income distribution capabilities in New York and London.

Yield Spread

The extra yield investors demand to own Brazilian government dollar bonds instead of U.S. Treasuries fell seven basis points, or 0.07 percentage point, to 175 basis points at 12:07 p.m. in New York, according to data from JPMorgan.

The cost of protecting Brazilian bonds against default for five years climbed one basis point to 135 basis points, according to data compiled by Bloomberg. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

The real weakened 0.1 percent to 1.9813 per dollar. Swap rates on contracts due in January 2014 climbed three basis points to 7.65 percent.

Not all of Brazil’s investment banks are seeking mandates abroad. State-controlled Banco do Brasil, the country’s third- largest underwriter of overseas debt in 2012, has never managed a bond sale from a non-Brazilian company, Bloomberg data show.

“It’s something that we’ll probably do in the future,” Leonardo Loyola, an executive manager for capital markets at Banco do Brasil, said in an interview in Sao Paulo. “We are now more focused in Brazil.”

BTG expects underwriting business from the rest of Latin America to continue to surge in the coming years.

“Competition is very tough in the region; we know that, but our view is that right now, we’re barely scratching the surface,” Severino said. “Andre Esteves, our senior partners, all of us, we don’t want to just be a Brazilian bank. Our strategy is to be the preeminent Latin American bank.”

To contact the reporters on this story: Boris Korby in New York at bkorby1@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net


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