WASHINGTON DC
OCTOBER 2010
Investor Relations and Reporting: Lessons from the turmoil
Andre Proite
Brazilian National Treasury
Investor Relations Office- Manager
Underlying context
BRAZILIAN FEDERAL PUBLIC DEBT
The impact on IR activities within debt management
“Out of the box” activities
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A quick glance at Brazil when the crisis hit its shores
IR under Stressful Scenarios
BRAZILIAN FEDERAL PUBLIC DEBT
Before oct-08
After oct-08
Brazilian growth supported by
strong credit supply (both
domestic and external)
Abrupt and sharp drop in
domestic confidence
High employment
Sharp and sudden drop in credit
supply with more demanding
conditions
Increased real wages
Rising global aversion
High confidence in consumers,
investors and business
Extraordinary fall in interbank
credit support and strong
deleveraging
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Example: Proactive Measures to Contain the Effects of the Credit Crisis
Brazil has been successfully proactive, and yet cautious, in addressing the impacts of the
global crisis. So far the Government has used monetary policy, as well as direct
intervention in the FX market (From Sep-08 to Mar-09):
FX Intervention USD
66.1 bn
Monetary Policy BRL 80.6
bn
12.5
BRAZILIAN FEDERAL PUBLIC DEBT
Bonds
FX spot sale
14.3
Repo Agreements
12.8
Export-directed
loans
6.0
No impact on
FX-reserves
68.1
Cash
Impact on FXreserves
33.0
Swaps*
•Source: Central Bank
•*Swaps+ Reverse swaps not rolled over ** Reserve Requirement
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Underlying Context
BRAZILIAN FEDERAL PUBLIC DEBT
The impact on IR activities within debt management
“Out of the box” activities
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Events in Public Debt Management
The Effects on the Domestic Medium Term Fixed Rated Bonds
Domestic medium term fixed rated bonds (NTN-F) - yields
20
18.58
17.54
18
Yield (%)
16.43
17.83
17.97
16.75 16.87
16
14
14.83
14.59
14.36
14.02
13.85
13.78
13.60
8/29/2008
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
10
Jan-10
BRAZILIAN FEDERAL PUBLIC DEBT
12
10/24/2008
A 500 bps upward shifting in only two months
A few auctions were cancelled in order to avoid sanctioning the distortions arisen
Lowest financing requirement for that year – a result of the strategic planning activities in the past years
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Events in Public Debt Management
Evolution of Borrowing Requirement
400
18%
R $ bn
14%
300
BRAZILIAN FEDERAL PUBLIC DEBT
12%
250
% G DP
16%
350
10%
200
8%
2003
2004
2005
2006
2007
2008
2009
Net Borrowing Requirement (R$ billion)
Net Borrowing Requirement (% do GDP)
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Events in Public Debt Management
NTN-F (fixed rate) Spread auctions
The
Treasury performed four simultaneous
auctions amidst the high volatility in the
financial market;
NTN-F yield curves before and after the
auctions
18.2%
18.0%
purpose was to assure, to market
participants, price parameters and avoid the
deterioration of the correlated bond markets
due to increasing premium at the time.
BRAZILIAN FEDERAL PUBLIC DEBT
The
17.8%
17.6%
17.4%
17.2%
Early redemption of R$ 206 mn, R$ 1.14 bn and
17.0%
R$ 228.7 mn respectively in the first three
auctions and R$ 309.8 mn in the last auction.
16.8%
16.6%
2012
The overall result was a net redemption of R$
1.78 bn in four auctions.
2014
10/22/2008
2017
10/29/2008
Source: Andima
This allowed few investors to unwind their positions without compromising the portfolio of
those who intended to hold their securities.
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Underlying Context
BRAZILIAN FEDERAL PUBLIC DEBT
The impact on IR activities within debt management
“Out of the box” activities
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Alongside with the Debt Management activities, many other aspects came to the IR Unit to
address
Because the level of uncertainty was so high, people were interested in all potential sources of
unbalances, while the crisis effects were unfolding
BRAZILIAN FEDERAL PUBLIC DEBT
Strong unwinding positions due to fear and need to recur to “safe havens”
Then the IR Unit had to tackle topics far from its main stream activities
Challenges: lack of consolidated information /data
Short-time frame for responses
Coordination with Central Bank
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Alongside with the Debt Management activities, many other aspects came to the IR Unit to
address
Examples
Strength of the National Financial System
Excessive Operations with “FX hedging” by a number of Brazilian Corporates
BRAZILIAN FEDERAL PUBLIC DEBT
Public Banks activities
The role of
Treasury’s lending to the local development bank –BNDES
Change in reserve requirement
FX-reserves management
Mortgage markets in Brazil
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Example 1 : Some investors often transposed Brazil to the US reality
Credit and Mortgage as % of GDP
Mortgage Credit to GDP Ratio
Total Credit to GDP
88%
81%
78%
74%
58%
57%
BRAZILIAN FEDERAL PUBLIC DEBT
45%
33%
26%
16%
11%
11%
6%
South
Africa
Chile
Hungary
Mexico
Cz. Rep
5%
Poland
2%
India
5%
Brazil*
Source: Global Property Guide (May/2009), Moodys, Central Bank
* Total Credit / GDP data for Brazil as of June 2010. For the other countries as of December
2008
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Example 2 : Proactive Measures to Contain the Effects of the Credit Crisis
Credit/GDP per origin - Jun/00 to Aug/08 (Jun/00 = 100)
210
186.72
190
Public
Private
Before the crisis, the credit supplied by the private
sector has always surpassed the credit offered by the
170
150
public sector
130
110
94.70
90
70
Jun-00
Oct-00
Feb-01
Jun-01
Oct-01
Feb-02
Jun-02
Oct-02
Feb-03
Jun-03
Oct-03
Feb-04
Jun-04
Oct-04
Feb-05
Jun-05
Oct-05
Feb-06
Jun-06
Oct-06
Feb-07
Jun-07
Oct-07
Feb-08
Jun-08
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Credit/GDP per origin - Aug/08 to June/10 (Aug/08 = 100)
154.53
150
Then, sharp and sudden drop in credit supply
Public
140
Private
130
Public banks provided the funding required to keep
the investments in the economy
120
110.46
110
100
90
Source: Central Bank for all charts
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
80
Aug-08
BRAZILIAN FEDERAL PUBLIC DEBT
160
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Final Remarks
In
such fast-moving environment, perceptions can affect market action as much, if not
more than, the fundamentals
In this context, an IR Unit should have a systematic approach
to articulate the strength of
the buffers that it has to counter the market environment under a stressful scenario
BRAZILIAN FEDERAL PUBLIC DEBT
Finding out investors’ needs
Active behavior in identifying key aspects in a given moment
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Contact
Investor Relations Office
[email protected]
Staff:
Andre Proite –Manager
Flavia Barbosa –Deputy Manager
David Athayde
Juliana Diniz
Mathias Lenz
Beatriz Garcia- Trainee
Sofia Hauschild - Trainee
http://www.tesouro.fazenda.gov.br/english/index.asp
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