Pace Is Fast in Market for Brazil's Debt
SAO PAULO, Brazil - This nation's moves to make peace with the international financial community are heating up the secondary market for the country's foreign debt, market players said.
"I would say that we are having a record year in activity," said Roberto Correa de Fonseca, who heads Banco Santander's merchant banking unit in Sao Paulo.
Brazil had been regarded as a pariah by the international financial community after stopping interest payments on longer-term foreign bank debt in 1987 and again in 1989.
Brazil recently has begun to make peace with international banks. One week ago, it paid commercial banks $866.5 million in interest arrears, its first payment under a pact on $8.5 billion in debt arrears reached in April.
In the secondary market Brazil's debt slipped on Monday to about 33.50 cents bid for each dollar of face value after being steady at about 34.50 cents last week.
"I think one bank was taking advantage of the higher prices to sell part of its portfolio. What is significant is, prices are recovering," said Alvaro Candela, vice president of First Interstate Capital Markets Ltd. in Rio.
A Sharp Uptick
Prices on the secondary market in London were being quoted at about 33.875 cents bid and 34 cents offered this afternoon.
The prices are a sharp uptick for Brazilian paper, which a year ago was quoted at about 23.50/24 cents. It rose to 29/29.25 cents in May and broke the 30-cent barrier in June.
"There now is something for banks to do with their paper," said Paul Bydalek, managing partner of Atlantic Capital Consultoria Financeira Ltda in Rio de Janeiro. The privatization of state steel company Usiminas, slated for September, could use some $700 million to $800 million in secondary debt paper, the financial consultant said.
Trading has also been fueled by market talk that Chartered WestLB Ltd. has a mandate from National Steel Co. to covert $800 million to $1 billion in foreign debt of the heavily indebted state company into long-term bonds.
Testing the Market
The investment bank is now "testing the waters" with other banks to see if the transaction is feasible, said one trader.
Chartered WestLb could not be reached for comment on the rumored transaction.
International bankers based in Brazil say they believe Marcilio Marques Moreira, economy minister since early May, will take a less strident approach to foreign debt talks.
"The mood is better. I think the new economic team will have a different approach. I think they will try more to dialogue," said Dennis Ziengs, general director for Banco Holandes Unido, the Brazilian unit of Holland's powerful ABN-Amro Bank.