I have commented on private equity in Brazil and other emerging markets. Here are some interesting observations from Tom Kadala on commercial debt in Brazil as a way to attract foreign capital for companies as well as infrastructure projects.
Last year when Brazil’s second largest bank, ITAU Unibanco, sold 400 million reais (USD$200 million) of bundled corporate loans (technically referred to as CLO’s or Collateralized Loan Obligations) to foreign investors, the news media viewed the move as a signal that Brazil’s lending capacity was drying up. Just like a business that sells its receivables to raise cash quickly, Brazilian banks were replenishing their lending capacity by selling their attractive loan portfolios at a discount to foreign investors. To date, sales of CLOs have been brisk exceeding 50 billion reais (USD$25 billion). Should investors be concerned that Brazilian banks might be unloading their inventory of corporate loans to avoid a liquidity crisis? If not, what is really going on?
Brazil’s commercial and industrial backbone consists of over 14,000 mid-cap size companies that range in sales between USD$30 million and USD$200 million. These companies are mostly privately-held, which makes buying…
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