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June 05, 2015

Brazilian Companies Are Finding Willing Investors Again

By Dan Horch - June 3, 2015
Clipping from The New York Times

Six months ago, stocks and bonds in Brazilian companies were practically left for dead.
Brazil was sinking deeper into a recession. Its currency, the real, was reeling. And the country’s largest company, the government-controlled energy giant Petrobraswas embroiled in a corruption scandal that drew in politicians and weakened the government of President Dilma Rousseff.

Things have changed in six months.
Although Brazil is still recovering from its economic malaise, the nation’s major companies are attracting investors again. In recent months, President Rousseff has taken steps to cut the budget deficit. And in an unlikely twist, Petrobras itself is emblematic of the turnaround after it sold $2.5 billion in bonds with a 100-year maturity.

Brazil, the world’s seventh-largest economy, still faces hurdles. Investors have lost billions in Brazilian companies that are under investigation in possible securities law violations.
The real has dropped nearly 40 percent against the dollar in the last year, adding to losses for foreign investors. Inflation is still more than 8 percent. And should the government’s current progress in stabilizing the national debt falter, fears of a ratings downgrade could again send the currency plunging.

But, cautiously, some companies are tapping the public markets. Once new management took over in February, Petrobras — the world’s most indebted energy company, with about $130 billion in debt — moved quickly to build cash reserves. In the last two months, it raised more than $11 billion from the China Development Bank, the Standard Chartered Bank and three Brazilian banks.

Petrobras also finally restated its third- and fourth-quarter balance sheets. Those updated books allowed the company to again tap the global bond markets, which it did with the offering Monday. In a reflection of its weakened financial position, Petrobras paid a high price: a yield of 8.45 percent. But the offering was successful, even though analysts had modest expectations.

The strong demand for Petrobras’s so-called century bond may confirm that investors are willing to lend to and invest in Brazilian companies.

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