Small issuers can now access debt capital markets with lower costs and more competitiveness and scalability, according to the Brazil Securitisation State of the Market Q3 2022 report, released today and now available for download.
The report provides an overview of the Brazilian sustainable asset-backed securities (ABS) market. Supported by the GBMoore Foundation and developed in partnership with VBSO Advogados and VERT Securitizadora, the study identified a vast potential to scale up the use of thematic asset-backed securities (ABS) instruments in Brazil.
This deep analysis of the Brazilian sustainable ABS market provides information on its regulatory foundations and case studies highlighting opportunities to channel investment into sustainable activities, projects, and assets in the country. It also gives a summarised definition of some fundamental mechanisms that exist in the local market.
Andrés Felipe Sánchez, Head of Latin America, Climate Bonds Initiative:
"Securitisation presents a powerful opportunity for Brazil to attract investment and promote sustainable economic growth. By leveraging sustainable asset-backed securities, we can drive capital towards impactful and profitable projects that benefit both society and the environment. The emergence of this market is a critical step towards building a more resilient and equitable future for Brazil, and it is imperative that we continue to prioritize sustainable finance as a means of driving positive change."
Paula Peirão, Head of ESG, Vert:
"The Brazilian capital market has an important potential to foster innovation and a green economy. Securitisation companies have an important origination role, at the first stage of loans’ life cycles and closer to the real economy. To keep this market growing, we should increase the work on: developing a pipeline, investors education, access to concessional funds, among others. Working together is keen to scale up Brazil's securisation market."
Five issuer benefits of securitisation:
1. Access to debt capital markets: Securitisation structures can match the financing needs of small issuers to the investment preferences of institutional investors.
2. Lower cost of capital for the issuer: Securitisation stimulates competition between funding sources and capital suppliers due to the replacement of bank intermediation with a securitisation company that reduces the tax burden for its retail clients.
3. Fostering market competitiveness: Companies can ease their balance sheets and cash flows by wrapping their credit rights and other contract receivables into a securitised instrument sold in the debt capital market.
4. Scalability of local GSS+ debt market: Combining securitised structures with climate-aligned and social benefits could attract external capital to fund various small-scale activities of the Brazilian economy while expanding the local GSS+ market.
5. Leveraging financial entities’ lending capacity: Financial entities can use securitised debt to offload exhausted lending portfolios.
Thematic ABS market in Brazil
The labelled securitisation market debuted in 2016 with Suzano Papel e Celulose’s USD295m green CRA (Agribusiness Receivables Certificates) to finance low-carbon agriculture and forestry. After 6 years, the ABS deals represent a small share of the Brazilian GSS+ market (3.5%) but present a unique opportunity to scale up investments in smaller projects via securitisation. Non-labelled ABS deals in Brazil have grown over the past years with CRAs increasing from BRL12bn (USD 2.3bn) in 2019 to BRL25bn (USD 4.9bn) in 2021.
Brazil’s green securitisation market
Securitisation is one of the most traditional types of debt funding in Brazil. In 2021, the total volume of corporate debt securities issued in the Brazilian capital market reached USD147.4bn (BRL752bn), the largest annual amount to date. Asset-backed securities, such as CRI, CRA, and FIDC,account for the second largest share of the Brazilian corporate debt market (following debentures), and their share is growing. Notably, the agriculture sector is mobilising these instruments to increase its external funding opportunities, creating accessible investment options and bringing economic dynamism to the industry.
The growing role of GSS+ securitisation
GSS+ instruments can attract a larger pool of investors to grow the local capital market, contribute to the costs of averting climate change risks, and potentially reduce transition costs/ risks. The GSS+ securitisation could sharpen the competitive position of the Brazilian market by expanding the availability of credit and funding options.
The Last Word
Brazil’s agriculture sector offers vast opportunities for climate-related investments and can play a significant role in growing the green securitisation market.
While 2022 was a year of building momentum in the transition programme. 2023 will be a year of expansion. The first of the Criteria for the agri-foods systems transition are now in development with a focus on Crop production, Livestock production, and Commodity Supply Chains. Certification under the Climate Bonds Standard will be available later in the year.
Get in touch if you would like to participate in the Criteria development process. Currently, we are recruiting technical and industry experts for Commodity Supply Chain sector.
The proposed new criteria will build upon existing Agriculture Criteria, which can already be used to certify assets and activities, and will go beyond to offer Company-level and SLB certification as well.
Watch this space!
‘Til next time,
Climate Bonds.
