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Eldorado: Another fish hooked in Brazil

The ongoing corruption scandal in Brazil has put off investors, with yet another company falling foul of the authorities. Corruption scandals alone are not likely to put off investors, and recent events could signal a turning point in the ‘car wash’ scandal, which would only aid investment.

Jul 5, 2016 // 4:47PM

Eldorado, the Brazilian pulp and paper company, has been investigated by the Brazilian authorities for the company’s potential involvement in the ‘car wash’ scandal centred on kickbacks within state-owned oil firm Petrobras.

The company’s most recent bond, US$350mn worth of notes issued in June, fell 3.2% from when they were sold to an almost record low in the short time they have been trading, according to Bloomberg.

Bloomberg figures show that the bonds were trading at 98 cents to the US dollar on June 14, five days after the bonds were issued. The bonds are currently trading at slightly over 96.250 cents on the dollar.

However, while the company’s bonds have fallen dramatically off the back of investor concern, Brazilian debt will still likely remain popular amongst the international community.

“Investors will not shun the Brazilian debt markets as a result of Eldorado being investigated,” said Greg Saichin, CIO of EM fixed income at Allianz Global Investors.

He added that what is currently happening in the country could be the tail end of the corruption saga.

“There is something very positive happening in Brazil in that the legal system in the country seems to be working to a certain extent.”

Under the new interim government of Michel Temer, the judiciary in Brazil is attempting to become more proactive.

“Despite the volatility that could emerge from any actions taken regarding corruption, aggressively chasing corruption is only a good thing.”

The combination of an aggressive and active judiciary, alongside heavy penalties for those caught in corrupt practices is likely to produce strong benefits for the country, however painful that process may be initially.

“It creates investment opportunities, especially if the country is turning a corner,” Saichin noted.

Americas Macro

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