(Rewrites throughout with comments and details of repurchase)
SAO PAULO, Nov 10 (Reuters) - State-controlled Banco do Brasil SA offered to buy up to $600 million worth of perpetual and senior global notes, the latest in a number of Brazilian companies aiming to reduce their exposure to foreign debt.
In a statement on Tuesday, Brazil’s largest lender by assets said it could buy up to $300 million worth of 9 percent perpetual and 9.25 percent perpetual subordinated bonds, while repurchasing no more than $100 million worth of the 3.875 percent senior note due in 2022.
For many Brazilian banks and companies, long-term dollar-denominated funding has turned expensive after a 30 percent drop in the real this year stoked hedging costs. Last quarter, Brazilian markets went through their worst rout in 13 years on concerns that slowing Chinese growth and escalating political turmoil may lead the country to lose investment-grade ratings next year.
Still, investors questioned the move, arguing the bank could have done better buying back either the 8.50 percent perpetual note, considered the bank’s least efficient capital hybrid security, or the 6.25 percent perpetual note , which is trading below 60 cents on the dollar. The latter would have also pulled the bank’s yield curve higher at a lower cost, they said.
In addition, the tender may reduce Banco do Brasil’s Tier 1 capital, a measure of financial strength that compares the core equity and the risk-weighted assets of a lender.
“The current exercise will now pose a question to investors on how Banco do Brasil will replenish this regulatory capital,” said Ulisses de Oliveira, who manages $88 million in emerging market, high-yield bonds at São Paulo-based Galloway Gestora de Recursos. “This liability is awkward.”
According to a source with direct involvement in the deal, Banco do Brasil was sounded out by global investors willing to participate in a tender. The investment-banking units of Banco do Brasil, Citigroup Inc and JPMorgan Chase & Co are managing the deal.
Investors who tender every $1,000 in principal amount by Nov. 24 will receive $752.50, $777.50 and $872.50, respectively, on top of a $30 early tender premium. The all-cash offer expires before midnight on Dec. 9, the statement said. (Reporting by Guillermo Parra-Bernal; Editing by Grant McCool)