Bond market liquidity to spur Brazil M&A, says Kroll

The increase in investor appetite for Brazilian corporate debt is set to feed into the M&A market, according to Alexandre Pierantoni, head of corporate finance at US consultancy Kroll in São Paulo, told LatinFinance.

“Brazilian companies have access to international markets to issue bonds. Liquidity is coming back to Brazil and to Brazilian companies, and this will affect the M&A market,” he said in an interview.

Brazilian corporates are expected to raise more than $10 billion in the bond market this year, Pierantoni said. So far this year, they have issued $11.6 billion of notes, including sales last week by local investment bank BTG Pactual and zinc producer Nexa Resources.

Pierantoni predicts some 1,500 M&A deals in 2024, similar to last year.

The fixed income market is expected to outshine equities. Brazilian companies are forecast to raise as much as BRL460 billion ($92 million) this year, or 15% more than in 2023, according to Bradesco BBI, the investment banking arm of the financial group Bradesco.

Fundraising via the equity market will be more limited. “We have had four follow-ons this year. We may have another five to 15 IPOs and follow-ons until the end year. Not much more than that,” Pierantoni said.

“The market is still very reluctant and very sensitive to interest rates. What is going to be a game changer is when the US starts lowering interest rates. [But] we know it is not going to happen before July 2024,” Pierantoni said.

‘QUALITY COMPANIES’

Bradesco BBI is more optimistic and forecasts up to 30 equity transactions this year, including five IPOs.

“We have been speaking with almost 20 companies that are interested in raising funds from the stock exchange. They are quality companies that are going to take advantage of interest-rate cuts [in Brazil],” said Felipe Thut, director of Bradesco BBI.

Brazil’s capital markets have become a bigger source of funding for local corporates over the past decade or so. They accounted for 42.4% of all financing transactions last year, almost double the 21.5% registered in 2012, according to Centro de Estudos de Mercado de Capitais (Cemec), a think tank linked to Fundação Instituto de Pesquisas Econômicas.

At the same time, the share of funding with bank loans fell to 37% from 42.8%. Loans from Brazilian development bank BNDES saw the sharpest decline, falling to 10.2% from 28.2%, Cemec said.