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Capital Markets

Perpetual Brazilian bonds hit the right note

CSN becomes latest Brazilian borrower to issue new product

Vallimarescu: stresses
the institutional bid

On July 7, the day of the London terrorist attacks, only one company was brave enough to try to price a bond issue after the bombs went off. But the decision by Brazil's Companhia Siderurgica Nacional to go ahead with its perpetual bond turned out to be sound. After amassing $2.3 billion in orders, the bond was upsized to $500 million from $150 million (it was later re-opened for a further $250 million). The bond raised extremely cheap money for steel company CSN. A typical vanilla 30-year bond for the company could be expected to price with a coupon of about 9.625%. But this was no bullet 30-year bond. It's a perpetual, which should increase the coupon further, to the 10% range. On top of that, CSN can call the bond at par after five years and every quarter thereafter – an option that, depending on the volatilities you use, is worth about another 60 basis points to CSN.

Even though fair price for the bond looked as though it was above 10.5%,

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