NEW YORK, May 18 (IFR) - Brazil's largest private bank Itau is set to break a six-month drought in dollar bond issuance from the country with a three-year bond offering which will price on Monday.
Itau's bond deal, rated Baa3/BBB-/BBB+, follows a new issue from Brazilian cement maker Votorantim Cimentos in the euro market on May 7.
Itau's planned offering would be the first such sale by a Brazilian issuer in the US dollar market since November, when a slew of arrests connected to an alleged bribery scheme at state-run oil company Petrobras rattled market's faith in the country.
"We are seeing (Itau's deal) as a real reopener of the US dollar market for Brazil," said one syndicate banker not involved in either sale. "I don't know if Votorantim was the icebreaker everyone was looking for."
At initial price thoughts of low 200bp area over US Treasuries, Itau's new bond was seen offering investors an attractive yield to lure them back into the market. That level was later revised to guidance of 200bp, plus or minus 10bp.
"There is no better credit than Itau to reopen the market," said one New York-based origination banker. "It will test the appetite for Brazil and Brazilian risk."
Though it could have raised funds issuing locally at a cheaper cost, bankers said raising funds in dollars made sense for the bank, which recently bid US$2.2bn for a controlling stake in Chilean lender CorpBanca.
Fresh doubts over the completion of the merger emerged last week when CorpBanca said the value of the merger was worth more than originally calculated.
According to Reuters, Itau improved the dividend payout proposal to minority shareholders as a way to sweeten its proposal.
This comes amid speculation that Itau may be raising funds to cover any shortfall in the initial bid.
Itau has simply said proceeds from the sale will be used for general corporate purposes.
"I feel like there is still strong institutional demand for Brazil and people would love this credit at this level," said the first banker, who argued fair value for the new issue, Itau's first senior bond in a while, would probably be around 190bp over Treasuries.
To another banker, however, the deal looked expensive if compared to the bank's cost of funding in the local market.
"I think people are scratching their heads. Swapped back... this looks like funding at 106% of (local benchmark) CDI, which looks pretty expensive," he said.
He argued Itau could easily raise three-year funding locally at 100% of CDI - equivalent to a spread over US Treasuries of 165bp-170bp - or even cheaper.
BB Securities, Bank of America Merrill Lynch, Citigroup, Itau BBA and Santander are the bookrunners on the transaction. (Reporting by Davide Scigliuzzo; Editing by and Shankar Ramakrishnan)