Brazil Raises $2 Billion with Successful ESG Bond Debut

Brazil secured $2 billion from issuing its first-ever environmental, social, and corporate governance (ESG) bond, while the total order book neared $6 billion, showing strong demand. The successful debut represents an important step for Brazil’s green agenda and its journey to reclaim its investment-grade rating. 

75% of ESG Bond Investors Were From Europe and North America

On Monday, Brazil successfully raised $2 billion through its inaugural ‘green’ bond issuance, as reported by Reuters. The initiative is part of a broader strategy to create a benchmark in the private market and allocate funds towards the government’s sustainability goals.

According to Brazil’s Finance Minister Fernando Haddad, the seven-year bonds offer a 6.5% yield, and the final outcome of the fundraising was described as “quite significant.” Haddad stressed that the spread of the effort was comparable to those seen in investment-grade countries. 

The Treasury noted that the demand for Brazil’s first ESG bond was even more impressive, with the order book hitting almost $6 billion. Further, the final allocation witnessed significant participation from non-resident investors, with as much as 75% originating from North America and Europe. Brazil and the broader Latin America represented the remaining 25%. 

Per Reuters, one person with knowledge of the matter emphasized that the spread was notably lower than what the Brazilian government obtained for its traditional $2.25 billion issuance in April. 

“At this rate of 6.5%, we are trading only 15 points above … a Mexican bond, which is investment-grade.”

– the source stated.

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What Does the ESG Bond Debut Mean for Brazil?

The successful debut of its first green bond marks a significant step for Brazil’s sustainability objectives, as well as its investment-grade rating.

By 2016, the biggest Latin American country lost all its investment-grade ratings following a stark economic recession and political crisis at the end of a global commodity boom. Even though Fitch Ratings hiked Brazil’s credit rating in July and the S&P 500 raised its outlook for the country a month before, it hasn’t yet managed to reclaim its desired investment-grade rating. 

This refers to a rating credit agencies assign to assess the risk of default on the country’s debt. It indicates the likelihood that the government will meet its financial obligations, with higher grades signifying lower risk and increased investor confidence.

Earlier Monday, Brazil’s Treasury said that the nation’s ESG bonds, set to mature in 2031, would be issued in dollars. The issuance was led by banks Itau BBA, JPMorgan, and Santander.

According to Statista, Brazil’s gross public debt in domestic currency reached around $1.49 trillion in the second quarter of 2023, marking an increase from $1.37 trillion in the previous quarter. Additionally, the country’s debt denominated in foreign currency stood at $0.085 trillion in the same period.

Do you think Brazil will eventually recover its investment-grade rating? Let us know in the comments below.