Latin Finance - March/April 2012 - 36

Brazil hybrid securities

Preparing the Way
by Mariana Santibáñez

W

hen Banco do Brasil issued its hybrid perpetual in January, it became the first Latin American financial institution to test drive an instrument that may act as a model for others seeking Tier 1 capital ahead of the implementation of Basel III rules. additional capital. Basel By issuing a deeply subordinated III will be phased in instrument that adjusts with changes over time,” says Alexei in the regulatory landscape, Brazil’s Remizov, managing largest bank was certainly forging new director of LatAm ground. But it was also taking risks debt capital markets with what arguably was a premature at HSBC, which led step in tapping the loss absorbing the transaction along Tier I capital that policymakers hope with BB Securities, will form part of a stronger global BNP Paribas, Citigroup regulatory system going forward. and Standard How the Brazilian central bank will Chartered. “Banks adapt local regulations under the Basel will need to adjust III framework is still a big unknown, their capital structure which is precisely why Banco do to accommodate Brazil’s flexible structure makes sense. new regulations and It is true that Brazilian banks will likely continued loan growth.” need to adjust their capital base to the Distinguishing new requirements and hence tap the Features market if they wish to accommodate The structure’s further growth. However, it remains distinguishing feature unclear whether these new hybrid is a so-called floating perps would even qualify as Tier I indenture that allows capital in the first place. Banco do Brasil stands tall with new hybrid perp the borrower to amend This ambiguity has left market conditions on the bond, participants blowing hot and cold including loss absorption clauses, so that they qualify as Tier I over the prospects of more such Basel III compliant deals on the capital once Brazilian regulators reach their own conclusions. immediate horizon. In Brazil at least, some observers argue that For instance, the new perpetual non-cumulative junior other domestic banks are already well-capitalized and are likely subordinated security allows the principal to be written down to wait for a more detailed picture on how the central bank will if the bank’s common equity Tier 1 ratio falls below the 6.125% mold the regulatory environment in a post Basel III world. Still, the model itself was seen as innovative, and could prove threshold required by the Brazilian Central Bank. The feature essentially acts as a bridge to cover the regulatory useful for other LatAm FIGs that are growing and seeking to gap until the new regulations are introduced, allowing banks to restructure balance sheets to comply with new Basel III rules. issue Tier 1 subordinated debt in the meantime. Leads say they have already received enquiries from other “Banco do Brasil’s floating indenture sets the most adverse financial institutions not only in Brazil, but in Europe and the US possible scenario for investors, and its rationale is to be as well. conservative vis-à-vis the practices that are being adopted by “Brazil is growing and that should prompt banks to raise

Banco do Brasil has broken new ground with a Basel IIIcompliant hybrid perp. Did it act too soon, or will this instrument be a model for others to follow?

36 LatinFinance

March/April 2012



Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012

Latin Finance - March/April 2012
Contents
Man of the Year
Local Currency Debt
Brazil Private Equity
Asia Buyside
Secondary Markets
Finance Ministry Scorecards
Markets cheer the appointment of a new Petrobras CEO
Banco do Brasil breaks new ground with hybrid perp
Oil services company Lupatech faces an uphill struggle
Bankers vie for a foothold in a booming wealth management segment
Offshore assets soar in price as foreigners fight to secure oil-rich real-estate
Vitro’s restructuring raises questions over bankruptcy system
Bottling-sector consolidation is underway. More is expected
Chile fails in efforts to kick start huaso market
Can Peru meet investment needs in the face of potential social unrest?
Colombia’s banking system is enjoying its salad days amid an acquisition frenzy
Latin Finance - March/April 2012 - Latin Finance - March/April 2012
Latin Finance - March/April 2012 - Cover2
Latin Finance - March/April 2012 - Contents
Latin Finance - March/April 2012 - 2
Latin Finance - March/April 2012 - 3
Latin Finance - March/April 2012 - 4
Latin Finance - March/April 2012 - 5
Latin Finance - March/April 2012 - 6
Latin Finance - March/April 2012 - 7
Latin Finance - March/April 2012 - 8
Latin Finance - March/April 2012 - 9
Latin Finance - March/April 2012 - 10
Latin Finance - March/April 2012 - 11
Latin Finance - March/April 2012 - Man of the Year
Latin Finance - March/April 2012 - 13
Latin Finance - March/April 2012 - 14
Latin Finance - March/April 2012 - 15
Latin Finance - March/April 2012 - Local Currency Debt
Latin Finance - March/April 2012 - 17
Latin Finance - March/April 2012 - 18
Latin Finance - March/April 2012 - Brazil Private Equity
Latin Finance - March/April 2012 - 20
Latin Finance - March/April 2012 - 21
Latin Finance - March/April 2012 - Asia Buyside
Latin Finance - March/April 2012 - 23
Latin Finance - March/April 2012 - Secondary Markets
Latin Finance - March/April 2012 - 25
Latin Finance - March/April 2012 - Finance Ministry Scorecards
Latin Finance - March/April 2012 - 27
Latin Finance - March/April 2012 - 28
Latin Finance - March/April 2012 - 29
Latin Finance - March/April 2012 - 30
Latin Finance - March/April 2012 - 31
Latin Finance - March/April 2012 - Markets cheer the appointment of a new Petrobras CEO
Latin Finance - March/April 2012 - 33
Latin Finance - March/April 2012 - 34
Latin Finance - March/April 2012 - 35
Latin Finance - March/April 2012 - Banco do Brasil breaks new ground with hybrid perp
Latin Finance - March/April 2012 - 37
Latin Finance - March/April 2012 - 38
Latin Finance - March/April 2012 - Oil services company Lupatech faces an uphill struggle
Latin Finance - March/April 2012 - 40
Latin Finance - March/April 2012 - 41
Latin Finance - March/April 2012 - 42
Latin Finance - March/April 2012 - 43
Latin Finance - March/April 2012 - Bankers vie for a foothold in a booming wealth management segment
Latin Finance - March/April 2012 - 45
Latin Finance - March/April 2012 - 46
Latin Finance - March/April 2012 - Offshore assets soar in price as foreigners fight to secure oil-rich real-estate
Latin Finance - March/April 2012 - 48
Latin Finance - March/April 2012 - 49
Latin Finance - March/April 2012 - Vitro’s restructuring raises questions over bankruptcy system
Latin Finance - March/April 2012 - 51
Latin Finance - March/April 2012 - 52
Latin Finance - March/April 2012 - Bottling-sector consolidation is underway. More is expected
Latin Finance - March/April 2012 - 54
Latin Finance - March/April 2012 - 55
Latin Finance - March/April 2012 - Chile fails in efforts to kick start huaso market
Latin Finance - March/April 2012 - 57
Latin Finance - March/April 2012 - 58
Latin Finance - March/April 2012 - Can Peru meet investment needs in the face of potential social unrest?
Latin Finance - March/April 2012 - 60
Latin Finance - March/April 2012 - 61
Latin Finance - March/April 2012 - 62
Latin Finance - March/April 2012 - Colombia’s banking system is enjoying its salad days amid an acquisition frenzy
Latin Finance - March/April 2012 - 64
Latin Finance - March/April 2012 - Cover3
Latin Finance - March/April 2012 - Cover4
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