Global real bonds – offshore bonds denominated in reais – are offering Brazilian issuers and international investors advantages over onshore local-currency bonds and traditional international dollar-denominated bonds. Bankers expect Brazilian companies to continue to tap this pocket of investor appetite and more deals are expected.
Banco Safra’s global R$800 million ($502.5 million) bond in early August was proof the structure remains a viable option for stronger Brazilian credits even in turbulent markets. Safra upsized the bond from R$500 million, after attracting more than R$1.6 billion in orders.
Offshore real-denominated issuance is attractive to Brazilian companies because the yield curve trades through the domestic curve. Companies have to pay an IOF tax to bring the proceeds onshore. But, even with this tax, bankers say the cost of funding via offshore bonds is lower than issuing in the domestic market. If the issuer uses the proceeds outside Brazil the cost savings are clearly higher.
Quantification of the savings is hard, with little comparable offshore and onshore paper, but the Brazilian sovereign has seen up to 375 basis points differential between onshore and offshore bond yields. As the IOF tax is a flat rate, the differential is higher at the shorter end of the curve.
