Bloomberg

New York

Underwriters of Brazil’s corporate bonds, including JPMorgan Chase & Co and Citigroup, are heading into 2015 with diminished expectations.

Petroleo Brasileiro, the national oil company that accounted for 35% of corporate issuance out of Brazil in 2014, says it doesn’t plan to sell bonds next year. Some companies may be ensnared by a widening bribery investigation into the oil producer, according to JPMorgan. Borrowing costs that surged to a five-year high this month may also deter first- time issuers, Citigroup predicts.

After a record $33bn of first-half issuance in 2014, bond sales from Brazil all but stopped. In the last six months, companies raised just $5.8bn, the least since the credit crisis. The underwriters anticipate bond sales to remain depressed in the New Year as Brazil struggles to emerge from a recession that’s pushed its credit rating to the cusp of junk.

“It wasn’t a great end of the year,” said Ricardo Leoni, the head of Brazilian debt capital markets at New York-based JPMorgan, the nation’s fourth-biggest underwriter of corporate- bond sales. “There’s no clear sign of a resolution” to the corruption probe, which may weigh on companies wanting to sell debt, he said by telephone from Sao Paulo.

Petrobras’s press office said by e-mail that the company doesn’t intend to issue debt in 2015.

The oil producer has been the biggest corporate bond issuer in emerging markets over the past four years, according to data compiled by Bloomberg. It has raised $44.9bn since 2011, 10% more than the amount sold during that span by Mexico’s state oil company, Petroleos Mexicanos.

Petrobras said that it’s cutting investments and operating costs to avoid the need to raise cash. The Rio de Janeiro-based company sold $5.1bn of debt denominated in euros and pounds in the second week of January. In March, it sold $8.5bn of notes.

In the bond market, borrowing costs for Brazilian companies have increased 0.3 percentage point this year to 7.08%, versus an average decline of 0.1 percentage point for emerging markets, index data compiled by JPMorgan show. The yield for Brazilian issuers touched 7.7% this month, the highest since June 2009.

“New-issue premium for emerging-market countries, and for Brazil specifically, is higher now, and that should prevail in the coming months,” Eduardo Freitas, the co-head of debt capital markets at the Brazil unit of Citigroup, said by telephone from Sao Paulo. “If you don’t have a real need for it, you won’t be the first one to jump in and find out what the pricing levels are like.”

Citigroup was the fifth-largest underwriter of Brazilian corporate bond sales this year, data compiled by Bloomberg show. The three biggest underwriters, Banco do Brasil, HSBC Holdings and Banco Bradesco, declined to comment.

For 2014, Brazilian companies have sold $38.8bn of bonds internationally. While that’s more than last year’s $33.3bn, it’s less than the record $46bn sold in 2012. Globally, corporate bond sales reached a record of more than $4tn this year.

JBS, the world’s biggest meat producer, pulled a debt sale December 8, citing market conditions. Competitor Marfrig Global Foods SA scrapped a bond offering November 19, saying yields demanded by investors didn’t meet its target.