Corporate High-Yield Bond of the Year - Klabin

Corporate High-Yield Bond of the Year - Klabin

Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Brazil

After Brazil lost its investment grade rating, the São Paulo-based paper and pulp producer Klabin followed suit. The downgrade had a limited effect, however, because the company had not issued cross-border bonds since July 2014, when it raised $500 million from a 10-year note at 5.25%.

Klabin returned to the international market in September 2017 with a 10-year green bond that priced below 5%, despite the company’s lower credit rating. Lowering the cost of funding after more than three years away from the cross-border market and venturing into the relatively new field of green bonds allowed Klabin’s 4.785% 2027 notes to win the award for the Corporate High-Yield Bond of the Year.

After 25 consecutive quarters of growth, investors were keen to get into Klabin’s first international bond issue since 2014, and the order books were seven times oversubscribed, says Klabin CFO Eduardo de Toledo. “Being a green bond helped a lot,” he says.

Now, with the national development bank BNDES turning its focus to small businesses and infrastructure projects, Toledo doubts that Klabin will stay away from the market for another three years. The company will likely get its funding this year from bond sales, export credit agencies (ECAs) and pre-export finance, he says.

“We are preparing a five-year investment plan, a more ambitious investment plan, and we have to take care of the funding for these new investments,” Toledo says. The plan, set to be released by the middle of the year, includes three projects with estimated investments between $500 million and $1 billion.

In 2018, as the country gears up for the presidential elections in October, corporate issuers from Brazil may find it hard to access the cross-border bond market. But companies that have a natural hedge for dollars, such as an export-reliant paper producer like Klabin, could find a better reception in the international capital markets, Toledo says.

“The last few years have been a trial by fire,” he says. “But large exporting companies will have more of an opportunity to keep the window open.”

In the meantime, Brazil’s local capital markets will likely keep developing, especially for instruments like agribusiness receivables certificates, otherwise known as CRAs, Toledo says. Klabin itself is monitoring market conditions for the right time to sell 600 million reais ($180 million) in six-year CRAs in the local market. LF