Prepared by Heedon Kang and Christian Saborowski.
Equity issuance spiked in 2010 due to the Petrobras IPO. In September 2010, Petrobras raised about US$70 billion from a public IPO, selling 2.4 billion common shares for 29.65 reais and 1.87 billion preferred shares at 26.30 reais per share.
External debt is also subject to relatively low and largely fixed interest rates.
S&P’s Capita IQ comprises about 693 Brazilian companies compared to 225 in Worldscope.
The yellow line in the first chart in Figure 5 illustrates that ICRs are substantially higher in Brazil—closer to 6—when defining the ICR as EBITDA over net interest expenditure. The reason is high liquidity holdings on Brazilian corporates’ balance sheets.
A similar picture arises when plotting capital expenditure relative to total assets and the size of a company’s balance sheet.
Less than 1 percent of companies have foreign currency debt, and they account for more than 60 percent of total debt.
A so far unpublished analysis by the Central Bank of Brazil suggests that about 90 percent of the proceeds of offshore issuance by foreign incorporated subsidiaries of Brazilian firms returns to Brazil.
Note that this analysis takes into account financial hedges in foreign markets only in the case of Petrobras.
In aggregate level, they hedge only about 10 percent of their FX debt.
When excluding foreign-owned companies that may receive intra-group financial support, the share of non-exporting companies without hedge declines to 16.8 percent of total FX debt and 5.8 percent of total NFC debt.
An important caveat of the analysis is the fact that not all corporate debt is linked to market interest rate developments. Refinancing costs for the share of debt linked to the TJLP would not necessarily change with market interest rates.
Note that this shock definition does not encapsulate the impact of exchange rate movements on the amortization of debt principal. Considering debt amortization would require defining the ICR based on EBIT rather than EBITDA. We decided to stick to EBITDA in order to stay with the definition used in the Global Financial Stability Report.
In the absence of firm-level data on currency composition and hedging contracts, we assume that the share of foreign currency debt is equal to the average of around 30 percent, where 70 percent of the foreign currency debt is hedged (see analysis in previous sections).