Brazil, home to 60% of the Amazon forest, has sold its first ever sustainable bonds in a long-awaited deal aimed at supporting the environmental and social agenda of President Luiz Inacio Lula da Silva.
The largest economy in Latin America is pricing two billion dollars worth of bonds due in 2031 at a yield of 6.5%, compared to the initial rate of about 6.8%, according to a person familiar with the matter who requested anonymity because he is not authorized to talk to the media about the subject. He added that investors have placed orders worth up to 6 billion dollars.
The bond proceeds are to be allocated to green and social projects under the newly adopted framework on sustainable bonds in the country, according to the filing.
Brazil’s first environmental, social and governance debt market issuance has been preparing for years, leaving Wall Street excited to gauge the success of the deal, after Finance Minister Fernando Haddad called the issuance”exceptional”.
While insiders said that the government is ready to issue the deal in early October, the sale did not take place, after the revaluation of US interest rates sent a state of concern about the assets of developing countries.
The deal comes at a time when Lula’s administration is pledging to reduce global warming emissions in Brazil, and to strengthen the country’s social welfare programs. It is also an early step by Brazil to keep pace with environmental, social and governance bond programs in other emerging markets, including Chile and Mexico.
The sustainability bond deal is expected to attract a wider investor base, a move that has allowed some bond sellers to reap the so-called “greenium”, i.e. a premium price for green bonds that is likely to be achieved when borrowing in the ESG bond market.
Thierry LaRose, fund manager at Vontobel Asset Management AG, said the deal “could improve Brazil’s ability to meet its huge environmental challenges”.
The expansion of the diversification of the country’s external investor base is also having a “positive impact on the management of sovereign debt”.
