JPMorgan Banker Sees ’08 Crisis Echoes in Brazil Capital Markets
8:00 PM BRT
April 12, 2015
JPMorgan Chase & Co.’s Ricardo Leoni says he’d have to hearken back to the tumult that gripped global markets seven years ago to recall a time when Brazilian companies were so loath to tap bond markets.
“What we saw in the first quarter was a paralysis,” Leoni, a 20-year investment banking veteran who is head of Brazilian debt capital markets at New York-based JPMorgan, said by telephone from Sao Paulo.
With Brazil boosting interest rates to combat inflation, the economy heading for its worst year since at least 1992 and a widening graft scandal attracting street protests, companies see few reasons to take on debt to finance investment. They’ve stayed away from the overseas bond market so far this year while raising just 11 billion reais ($3.6 billion) locally. Of that amount, almost all was used to refinance debt while just 0.5 percent was earmarked for investments or acquisitions, the lowest since the Brazilian capital markets association began compiling the data in 2009.
Brazil’s real declined 0.8 percent Monday to 3.1007 per dollar as of 8:39 a.m. in New York.
“Political and economic concerns have accumulated, and virtually no company had the courage to raise money for investments with these rates,” Carolina Lacerda, the head of investment banking at UBS AG’s Brazil unit and a capital markets director at Anbima, said by telephone from Sao Paulo. “Brazil was frozen in the first quarter, and everybody is in waiting mode.”
With President Dilma Rousseff’s approval rating at the lowest of any Brazilian head of state in 15 years, her plea that firms boost investment is failing to resonate.
Of the 669 companies surveyed by Rio de Janeiro-based university Getulio Vargas Foundation, 31 percent said they’ll invest less this year than in 2014. That compares with 16 percent of respondents who said they lowered investments last year. Forty-two percent said they will invest the same amount.
“Don’t let uncertainties undermine your vision for Brazil’s future,” Rousseff said at an event in Sao Paulo on March 10. “We’ll make every effort so that we see signs of a recovery by the end of the year. But we need to count on you too.”
The sluggishness of Latin America’s biggest economy is the main reason behind the investment decline this year, according the Getulio Vargas poll.
The economy will contract 1.01 percent in 2015 while inflation will soar to 8.13 percent, according to the median estimate of 100 analysts surveyed by the central bank. Last month, policy makers lifted borrowing costs to a six-year high of 12.75 percent to quell price increases that have exceeded Brazil’s 4.5 percent target since August 2010.
While JPMorgan’s Leoni said local debt sales may pick up over the next three months, with some already in the works, issuance will largely remain depressed given Brazil’s economic woes. The bank was Latin America’s third-biggest underwriter of debt sales in 2014, data compiled by Bloomberg show.
Business confidence plunged to a record low in March as the growing corruption probe into companies that allegedly bribed executives of the state oil company eroded confidence.
“Companies are being conservative,” Fabio Oliveira, the chief investment officer at GPS Investimentos Financeiros in Sao Paulo, which oversees 18 billion reais ($6 billion), said in an e-mail. “Confidence indicators at low levels and no prospect of reversal reflect the pessimism. So the word of the day is de-leverage.”