The proceeds of the notes will be allocated to green and social projects under the country’s newly approved framework for sustainable bonds. — Bloomberg
BRASILIA: Brazil is finally selling its first-ever sustainable bond, marking a long-awaited deal intended to support president Luiz Inacio Lula da Silva’s environmental, social and governance (ESG) agenda.
Latin America’s largest economy – which is home to 60% of the Amazon forest – is offering US$2bil in bonds due 2031 to yield 6.5%, less than the initial price talk of about 6.8%, according to a source.
The proceeds of the notes will be allocated to green and social projects under the country’s newly approved framework for sustainable bonds, according to a filing.
The nation’s debut in ESG debt markets has been in the works for years, leaving Wall Street eager to gauge the success of the deal after Finance Minister Fernando Haddad touted its “extraordinary” reception.
While sources had said the government was ready to go ahead with the deal as soon as early October, the sale hadn’t gone through as a repricing of US rates roiled developing-nation assets.
The offering comes as Lula’s administration pledges to lower Brazil’s greenhouse emissions and strengthen the country’s welfare programmes.
It’s also an early step by the nation to catch up with ESG bond programmes in other emerging markets, including Chile and Mexico. The offering’s sustainable label stands to lure a broader investor base, a move that’s allowed some bondsellers to reap a so-called greenium – the price advantage potentially gleaned when borrowing in the ESG market.
“The deal can improve Brazil’s capacity to tackle its monumental environmental challenges,” said Thierry Larose, a money manager at Vontobel Asset Management AG. Also, greater diversification of the nation’s external investors offers a “positive impact on the management of the sovereign debt.”
In a series of meetings with global investors, Brazilian officials have touted sustainable debt as a way to help the government meet a series of ESG goals in the coming years.Brazil is expected to soon release annual impact reports that detail how the proceeds of the bond will be spent.
Officials, however, have referenced the eradication of illegal deforestation by 2028 and reduction of greenhouse gas emissions among goals that could be advanced by ESG financing, according to a presentation used in recent investor outreach.
According to the allocation range indicated on the Treasury website, 50% to 60% of the funds will go to green projects, while 40% to 50% go to social issues.
The green allocation was more than expected, which is positive as there was “the risk that social would overwhelm the allocation with Bolsa Familia expenses,” said Viktor Szabo, investment director at abrdn in London. — Bloomberg
