Rumo to launch R$1.2bn in debentures

With the demand for these papers exceeding the supply, banks consulted by Valor believe that there will still be interest in incentivized debentures even without an extra yield, given the tax exemption’s appeal.

Evandro Pereira, director of J. Safra’s investment bank, mentions that new issuances in this format are likely to emerge in the market. “This option isn’t available to every company, but ‘triple A’ companies, which have a very low credit risk. They will be able to issue securities at B+0 [yield based on the NTN-B without an additional charge].” He adds that banks are considering the prospect of companies with the highest credit ratings issuing bonds at rates potentially lower than those of government bonds.

When a company issues a debenture, its yield is pegged to a benchmark, typically a public bond of similar maturity. An additional premium is then applied, reflecting factors such as the company’s risk of default. This rate also varies with market conditions, decreasing when demand is high and increasing when it is low.

Rumo’s offering will consist of two series, with maturities of 10 and 15 years. For the shorter-maturity bond, the company will pay a maximum rate equivalent to that of the NTNB-33 (a government bond indexed to inflation). For the longer one, it will offer a rate equivalent to the NTNB-35, as per the filing with the Securities and Exchange Commission of Brazil (CVM). The issuance is expected to be finalized next week. Rumo declined to comment on the offering when contacted by Valor.

Odilon Costa, a fixed income and private credit strategist at SWM Group, recalls that the last instance when corporate bonds yielded less than government bonds was in 2019. That year, the market saw a supply and demand imbalance amidst a decline in the Selic rate to 4.5% and a growing demand for credit. “In such situations, the return for the investor is essentially tied to the income tax exemption they receive on the bond, rather than any additional premium.”

However, he notes that the circumstances were somewhat different in 2019. “Back then, government bond rates were very tight, around 3.5%, and credit spreads were narrow. Currently, they are wider, around 5.5%, and the credit spread is much narrower,” he states.

Mr. Pereira, from J.Safra, suggests that this situation is not permanent. “There will be a point when rate compression becomes so significant that investors will shift to other securities, like taxable debentures. Eventually, the market will find its equilibrium.”

Marco Brito, head of Santander Brasil’s fixed income distribution area, notes that the reduction in premiums also occurs in corporate debentures without tax exemptions. “Corporate spreads have reached levels not seen in years due to a strong surge in asset demand following an influx of resources into fixed-income funds,” he states.

The current imbalance between supply and demand for incentivized debentures can be attributed to several factors. The most recent is a change in the rules governing the issuance of securities such as real estate and agribusiness receivables certificates (CRI and CRA) and real estate and agribusiness credit bills (LCI and LCA).

These modifications were made by Brazil’s National Monetary Council, which imposed restrictions on the entities eligible to issue these bonds and the assets that can back them, both of which have found favor among individual investors. With a projected decrease in the availability of these securities, interest in incentivized debentures, which also offer tax exemptions, has risen. Additionally, changes to the taxation of closed-end funds, which are exclusive or limited to a few investors, have further bolstered demand for incentivized debentures.