The Brazilian government is ready to sell a new sustainable bond before the end of this year to fund its ESG program, in what would be its third such issuance since November, Treasury secretary Rogério Ceron told LatinFinance.
“We may have a more positive window in the external environment towards the end of the year, especially when the Fed starts its monetary loosening process and cuts interest rates,” he said in an interview. “This is expected to boost liquidity in the international markets and favor emerging market issuances, such as Brazil’s, as we pursue our environmental agenda. We will then have more favorable conditions to go ahead with a third issuance,” he said.
US elections, including the possibility of Donald Trump’s victory in the November presidential vote, have to be taken into account, but “monetary policy flexibilization will have a greater weight than election-related uncertainty,” Ceron said.
The sovereign raised $2 billion in its inaugural ESG bond in November and followed it up with a $2 billion placement in June. A part of the proceeds from the two deals have been earmarked for a climate fund managed by local development bank BNDES to finance green investments.
Ceron said the Brazilian government could also sell more non-ESG bonds.
“We are going to monitor… We may be going ahead with a conventional issuance, but we are certainly getting prepared for a sustainable issuance in the near future,” he said. “There is a good probability that we will have another issuance this year.”
CREDIT LINES
Ceron said the government aims to start granting credit lines for ESG projects by the end of the year as part of its efforts to spur private investment.
An initial blended finance initiative was launched this month with the goal of attracting up to $20 billion in foreign investment for infrastructure and other sustainable projects. “We are intending to boost capital markets and integrate the domestic and international markets,” he said.
Ceron said the government is due to launch another credit line next month to help structure energy transition projects. “It will help set up funds and specific financial vehicles to finance viability studies and others,” he said.
A third initiative, to be launched in September, will take the form of a liquidity line to be used in case of exchange rate stress “to protect projects from exchange-rate volatility and offer creditors more security,” Ceron added.
The government also intends to extend its long-term currency hedging mechanism by the end of the year and provide liquidity to protect investors.
“It may help protect capital [financial] returns on projects in hard currency. Projects usually have good returns in local currency but not in hard currency due to exchange-rate volatility,” the official said.
“The hedge market does not have great liquidity over five years… So foreign investors will be able to have better clarity about their returns on investment. This could help attract a lot of foreign investment,” he added.