Brazil
Analysis

Brazilian firms leaning toward short-term debt financing

Bnamericas Published: Wednesday, April 08, 2020
Brazilian firms leaning toward short-term debt financing

Major Brazilian companies, including infrastructure and energy players, are using short-term instruments on the capital markets to avoid high interest rates charged by banks in a scenario of credit restriction.

Companies are opting to issue promissory notes or commercial paper to finance their short-term needs. 

Infrastructure company CCR, which holds highway, metro and airport concessions in Brazil and other countries, plans to raise 400mn reais (US$77mn) through the issue of promissory notes, maturing in one year, it said in a disclosure.

CCR local rival Ecorodovias plans to raise up to 1.23bn reais via a promissory notes issue in four tranches, maturing over the next two years, it told the market.

Meanwhile, natural gas distributor Comgás will raise up to 500mn reais via the issue of one-year notes, the company said.

The proceeds to be raised by the three companies will be used to reinforce their cash positions and not for capex. 

BANK INTEREST RATES

Commercial paper can carry lower interest rates than bank loans. 

With the economic volatility caused by the coronavirus, banks in Brazil have restricted the offer of new loans and operations involve higher interest rates, as the lenders claim the current scenario means a high risk of default.

Companies expect to arrange new loans at lower interest rates when the commercial paper matures. 

While private sector banks in Brazil say they are supporting clients during the period of crisis, various sectors complain of abusive rates.

“Banks should oxygenate the economy, but instead, they’re suffocating it,” said Luiz Carlos Moraes, president of vehicle manufacturers association Anfavea, in an interview with news magazine Exame. 

BAD SIGNS FOR SMEs

However, the option of commercial paper is more available to bigger companies, while small and medium-sized players face restrictions to debt financing. 

The government is trying to act via state-run banks Banco do Brasil, Caixa and BNDES to mitigate the turmoil but those banks also have limited mechanisms as they cannot assume high risks of default.

Banking federation Febraban said major banks have received 2mn requests from clients - including companies and individuals - to renegotiate debts totaling 200bn reais. 

"We understand the anxiety of several sectors, but it’s necessary to understand that this is a gradual and complex process, which requires several measures and, in many cases, involves regulatory changes," the group said in a statement.

The government recently launched a program worth 40bn reais to finance the payroll of SMEs. 

"Around 50% of the operational costs of those firms were payroll, so it makes sense acting on this front," said Roberto Campos Neto, head of the central bank, during a webcast with investors on Wednesday, underlining that the government is watching the situation of SMEs closely to offer additional financial support, if necessary. 

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