Following April’s $750 million bond issue to replace existing debt, Brazilian builder Construtora Norberto Odebrecht plans to continue seeking liability management opportunities. However, the attractive rate environment that has brought so many issuers to market may be coming to an end, its CFO says.
“Whenever we have an opportunity to issue less expensive debt and longer debt we aim to maybe access the market again,” Jayme Fonseca told LatinFinance. “You never know, yields are going so low, but until today we are not expecting to have yields lower than the last transaction that we just issued.”
Fonseca spoke as US treasuries experienced a volatile week, due to concern that the government may begin curtailing its measures to stimulate the economy, initiating a rise in rates. Some LatAm issuers hoping to access the market, such as Minerva, have elected to wait.
“Since [the market is] talking about lowest-ever prices, everybody is trying to issue a transaction at those levels,” he says. “I’m not sure if those levels are achievable right now.”
CNO plans to keep its gross debt at 2.5x Ebitda, Fonseca said.
Domestic demand, new instruments and a government push will inject much-needed energy into Brazil’s infrastructure development, which has disappointed sharply in recent years, Fonseca said. The country has the right mix of elements for infrastructure projects to take off, despite a slow two years.
“We believe that during the course of this second semester of 2013 we might have some good news coming from the economy. We have already new legislation about the ports in Brazil, we have the infrastructure debenture instruments,” he said.
Those debentures will spur financing for development that needs to happen to satisfy not just future demand, but current demand, he said.
Meanwhile, a dire need for yield in the domestic market is likely to channel cash into infrastructure, he said, speaking ahead of the central bank’s decision on Wednesday to raise rates by 50 basis points.
“Brazil’s local interest rates have never been so low, ever,” Fonseca said. “People inside the country are looking for yield as well. We have Brazilian pension funds, Brazilian insurance companies, Brazilian people, normal people looking for yield. Normally infrastructure is a natural place to put cash from pension funds, insurance companies and people as well. … This combination of real demand plus some measures the government is taking and this look for yield in Brazil, we have the right combination to put infra investment in place.”
Brazil’s government is moving in the right direction: “Our government made the decision to be more friendly and to attract investors as much as possible. This is good news. In the long run, if the target is the correct target we’re going to get there one way or another.”
CNO generates 30% of its revenues in Brazil, less than the 40% to 45% it had forecast two years ago. “We believe the government of Brazil is doing the right job, at least in the right direction. Unfortunately they’re taking longer to take the decisions,” he said.
For details, read LatinFinance’s Daily Brief. LF