Latin Finance - March/April 2012 - 38

Brazil hybrid securities

first out the gate and the move certainly raised questions among various global jurisdiction in the context of Basel III,” Remizov analysts and bankers who thought it should have waited for adds. more clarity on the evolution of local regulations before raising This is not the first such structure seen in the international the Tier 1 capital. capital markets. Banco do Brasil’s deal looked similar to the Most agree, however, it was certainly a cheaper alternative Netherlands-based Rabobank’s $2bn non-call 5.5-year perpetual, than tapping an equity market that hasn’t been at all receptive which was the first to include a loss absorption clause. to LatAm issuers, yet alone banks. Nor is it the first time that Banco do Brasil has taken the “It was not a good moment to issue shares, and with Basel lead in issuing such hybrids. In October 2009, it placed a similar we thought of other alternatives because the market is difficult Tier I non-cumulative structure in October 2009, generating and is not open to do an equity follow on,” Banco do Brasil’s an eye-popping $10bn plus in demand as retail investors Vice President Finance, Capital Markets and Investor Relations rushed to participate in a non-call 11 bond that offered an Ivan Monteiro tells LatinFinance. attractive step-up from what is seen as a systemically important With this issue, the bank no longer needs to raise more quasi-sovereign. capital for another two years, company officials told analysts However, on this occasion there are some important during a conference call on fourth quarter earnings for 2011. differences. The bank’s new NC11 bond does not carry a step-up and its coupon is reset in year 11 to the then 10-year US Treasury “From a helicopter view, this is equity for Banco do Brasil,” says a US-based emerging markets investor. “The more equity they rate plus the initial credit spread. have, the more they can grow their business. This makes sense.” Nevertheless, buyers liked the perceived value on the new In reality, instrument, Brazilian despite an Banco do Brasil - Tier I and Tier II Capital (BRLm) financial unsecured and Preparing for Basel III institutions are subordinated Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 already better structure that capitalized than carries no Referential 30,756 34,900 43,391 53,704 66,928 80,482 Shareholders’ Equity most of their step-up and global peers has different Tier I 20,729 23,951 31,201 41,087 52,397 60,615 and arguably as interest and Capital 11,913 12,711 13,780 18,567 33,078 33,123 a state-owned loss absorption Hybrid Instruments 2,524 2,415 2,719 bank, Banco trigger of Capital and Debt do Brasil could mechanics - Tier I afford to take than Banco do on the role of Brasil’s existing Tier II 10,027 10,949 12,190 12,617 14,530 19,867 an innovator, perpetual bonds. Subordinated Debt 8,957 9,986 11,729 16,060 18,738 24,522 setting a new The BB rated Hybrid Instruments 1,063 881 1,145 853 816 benchmark perp generated of Capital and Debt for others to a book of $6bn - Tier II follow. plus before Source: Banco do Brasil The pricing at par country’s to yield 9.25%, banking system is certainly in good shape, partly thanks to an attractive pick up considering its too-big-to-fail standing in stringent rules implemented in the wake of previous crises. investors’ eyes. Brazilian banks are already required to have a minimum Tier 1 “[Banco do Brasil] has around a 20%-25% of the Brazilian capital ratio of 11%, which is higher than the 8% floor set under bank market, and it is the only bank in every corner of Brazil,” Basel II and the same threshold set under Basel III rules, which says an EM investor. “The government is certainly expected to only will be fully enforced by January 1 2019. support it in case it runs into problems.” Should Brazil’s central bank approve the Basel III compliant As with its previous perp, retail bought such arguments and issue, Banco do Brasil’s ratio between risk-bearing capital and entered the trade in force, finding it hard to resist such attractive risk weighted assets – essentially an indicator of the bank’s yields on a quasi-sovereign name from Brazil. Marketing on Banco do Brasil’s previous hybrid perp required solvency – would jump to a 14.3%. Currently, Tier 1 and Tier 2 combined equal 14% with current Tier 1 at 10.5% and Tier 2 at a skillful balancing act between selling to retail investors who 3.5%. largely focus on the yield and more sophisticated institutional “Brazil keeps growing and the Brazilian economy is doing accounts who took a closer look at the bond’s structure. On this well, says Gustavo Henrique Santos de Souza, head of investor occasion about 49% of allocations went to private banking, but another 37% was placed with fund managers, with the rest going relations at Banco do Brasil. “While other banks may replenish their capital for other reasons, this is our history and we strive to financial accounts. to support the development of our own country.” LF Banco do Brasil was seen paying a premium for being the

38 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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