Currency slide threatens issuers
A widening out of the exchange rate adds to Brazil’s many challenges
slump in Brazil’s currency to its lowest level in over four years has thrown up
fresh challenges for issuers in an already volatile market.
Brazilian real reached 2.42 reais per dollar Monday, its weakest level
since March 2009, according to Itau. lt was at around 2.40 mid-day Tuesday.
The volatility has added to pressures facing policymakers and issuers.
currency was among the poorest performers in the emerging-market universe,
despite the central bank intervening on several occasions to contain
depreciation,” Itau said in a research note.
bankers see the currency moves as among the factors endangering equity issuance
planned for September and October. Azul cancelled
the registration for its IPO Monday, with the Airline deciding to wait for
better market conditions.
issuers remain in the pipeline, with fleet rental providers Ouro
Verde and Unidas
preparing IPOs for as soon as September. Via Varejo and Klabin are among those
with follow-on plans.
assets have continued to underperform from both the fixed income and equities
front with the [real] showing a steep 17.3% depreciation year-to-date,”
Bulltick said, citing global monetary reversal fears, an “extremely weak”
Brazilian domestic story and exodus of portfolio flows.
depreciation will keep the near term pressure on inflation rates, Bulltick
explains, and if it remains around 2.40, the Central Bank will likely be forced
to take the Selic rate above the shop’s 9.25% forecast for year-end 2013.
main concern for policymakers may be the impact of weaker currencies on
inflation,” Capital Economics said. “This is most obviously a worry in India
and Brazil, where inflation is already high. Even so, while further interest
rate hikes in Brazil are likely, we think the aggressive tightening priced into
the market may not materialize.”
uncertainty, the ongoing increase in interest rates raising cost of capital and
the impact of the street protests that prevented tariff hikes are all
challenging the government’s capabilities to stimulate growth, according to
Bank of America Merrill Lynch.
Brazilian government appears to be going all-in on the concession auctions
scheduled in the coming months,” the bank said. “We think the administration
views them as a key to generating a positive shock in expectations in order to
trigger better growth prospects.”LF