Brazilian companies cancel bond issues due to coronavirus volatility

Various Brazilian companies are canceling plans to tap the local capital market via bonds (known as debentures) because of the high volatility caused by the coronavirus crisis.

If this situation persists, a complicated credit scenario lies ahead.

The country's largest thermal power plants operator, Eneva, backtracked on a 600mn-real (US$124mn) bonds issue due to "adverse capital market conditions."

Evena wanted to fund part of the construction of the 117MW Jaguatirica II combined cycle gas-fired plant with the operation.

Banco BV (formerly Banco Votorantim), a joint venture between industrial conglomerate Votorantim and state-run bank Banco do Brasil, also canceled plans for a bonds issue.

The adverse market conditions that led to the cancellations are a result of the real's depreciation versus the US dollar and drops in share prices amid the spread of the coronavirus.

Especially Eneva's move suggests it expects this situation to persist, because it canceled the offer instead of temporarily suspending it, which companies normally do when faced with complications in the capital market.

HELP FOR SMALL COMPANIES

Given that tighter credit will affect SMEs more than bigger companies, authorities are preparing counter measures.

Development bank BNDES, for example, will offer special credit lines to SMEs in need.

And São Paulo state development agency Desenvolve SP will offer a credit line of up to 200mn reais to provide liquidity for companies. In addition, the agency reduced its monthly interest rate to 1.2% from 1.43% and extended the grace period from three to nine months.

“We are, through these measures, seeking to carry out an anti-cyclical movement that aims to minimize the economic impacts of the coronavirus in the largest economy”, Desenvolve SP president Nelson de Souza said.

GLOBAL IMPACTS 

Economists emphasize that governments have few options to deal with the immediate fallout, but over the long term play a decisive role.

"There’s not much that policymakers can do to prevent a global recession developing over the coming months as the economic effects of the coronavirus begin to bite. But they do still have the tools to prevent a recession from turning into a financial crisis and economic depression," according to Capital Economics' chief economist, Neil Shearing.

"And there’s plenty that they can do to aid the recovery once the effects of the virus fade. One common theme, however, is that, while central banks still have a major role to play in preventing liquidity freezes, governments will now have to shoulder the burden of supporting aggregate demand," he added.