Brazil's debenture market grew 167% in the first half this year, compared with the same period last year, having increased from 1,757 to 4,687 operations. The figures were disclosed by the National Association of Financial Market Institutions (Andima).
The volume traded doubled using the same basis for comparison, having increased from 5.4 billion reais (US$ 2.8 billion), in the first six months of 2008, to 10.8 billion reais (US$ 5.6 billion) from January to June this year.
Debentures are bonds, traded on stock exchanges, representing medium- and long-term debt that companies use for obtaining funds.
According to the superintendent of Products and Institutional Relations of Andima, Luiz Macahyba, the expansion of the domestic debenture market is a result of three factors. "There was a significant reduction in interest rates in recent months, and that leads to a reduction in cost for the company to obtain funds. Whenever interest rates go down, companies willing to shop for funds in the capital market tend to seize the opportunity," he said.
Other contributing factors are the feeling that the worse of the international financial crisis is over, and the present situation, which is better than the near-paralysis of the capital market in the second half of 2008.
According to Macahyba, debentures are the most flexible instrument that companies have for obtaining funds in the market. The issuing of debentures enables the restructuring of liabilities, the financing of investment in production, the acquisition of another company, among other activities. "It is a type of asset that is capable of adapting to companies' cash needs," he explained.
The superintendent of Andima believes that this year should see a recovery of the debenture market in Brazil, and of the capital market as a whole. "It is possible that we have already hit bottom, and that we are now on the road to recovery." He stated that if forecasted growth of the Gross Domestic Product (GDP) of 3.5% to 4% in 2010 is correct, then stock exchanges will receive a boost.
"Economic growth is synonymous with demand for funds from companies. And the capital market plays that role in a way that few others can," he concluded.