Corporate debt is ‘next big frontier’ for Brazil's growth

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The growth of a credible secondary market for Brazilian corporate debt is the ‘next big frontier’ facing the Latin American powerhouse, according to Brazilian market officials.

Speaking at the BESTBrazil investment conference in London last week, senior officials from the country’s central bank, the national treasury and various trade bodies set out the major challenges facing Brazil in 2012.

Describing the country’s fixed income market as ‘a bit dysfunctional’, officials said work was being done to improve the attractiveness of Brazilian corporate debt for both foreign and domestic investors.

Luciana Dias, director of the Brazilian securities and exchange commission CVM, said barriers to entry for investors in Brazilian companies were being removed under a new legal framework.

‘Foreign investors come to Brazil to buy equity and that is very common, especially after 2004. They also come in to buy Treasury bonds, which have 11% foreign ownership,’ she said.

‘But these investors don’t come in to buy corporate debt and we are trying to work on that.’

Dias added the Brazilian market would need to strengthen itself from economic shocks by developing a ‘deeper, more liquid’ market, which would see small and mid-cap names added to its stock market, the Bovespa.

Her comments on corporate debt were supported by Marcelo Fleury, head of business development at Latin American debt capital markets specialists Cetip.

Fleury said: ‘We are going to see the credible development of corporate bonds because a new framework is being put in and what was there is going to be improved. Every time there is a change or an improvement it is to the betterment of the market.

‘Corporate credit is the next big frontier for the capital markets in Brazil and we are fully prepared for it and our financial system is fully prepared for it.’

Elsewhere at the conference, Aldo Mendes, deputy governor for monetary policy at the Central Bank of Brazil, offered a positive appraisal of efforts to tackle inflation and stave off the impact of a global economic downturn.

‘Brazil is well placed in a global slowdown,’ Mendes said. ‘We have high foreign reserves, a sound financial system in place with low levels of leverage and the economy is recovering at a credible rate with inflation converging with our target expectations.’