Brazil´s debt market to continue booming in 2025, says Itaú BBA president

By Elisa Martinuzzi and Brad Haynes

DAVOS, Switzerland (Reuters) - Brazil's debt market will likely continue to thrive in 2025, with a potential increase in equity activity in the second half, after a three-year drought in the country's once vibrant IPO market, Flavio Souza, president of Itaú BBA, told Reuters on the sidelines of the World Economic Forum´s annual meeting in Davos.

In 2024, debt issuance reached 709.2 billion reais ($120.1 billion), 77.5% higher than in 2023 and a 55% rise from 2022, hitting a record since the Brazilian Financial and Capital Markets Association (Anbima) began tracking in 2012.

“We had a tremendous year (for debt issuances), obviously as you know related to the interest rates market,” Souza said. “Probably we will continue to see less activity in the equity market, but a very decent level of activity in the debt capital market,” he added.

Souza, however, said a strong message from the government regarding fiscal discipline could improve market sentiment and support a gradual pick-up in equity activity in the second half of 2025.

In 2024, fiscal concerns and rising interest rates kept many investors away from the stock market while diverting their attention to the less risky and increasingly profitable debt market.

Brazil´s benchmark rate ended the year at 12.25%, up from 11.25% in November of 2024. The country's central bank raised the rate by a full percentage point in December, and signaled two more rate hikes of that size to start the year.

Despite concerns about Brazil's public debt under leftist President Luiz Inácio Lula da Silva affecting foreign interest, the head of Itaú BBA noted that Brazil's primary deficit today is comparable to other major emerging markets.

“The main challenge we have is the nominal deficit, and totally related to the interest rate," said Souza.

Brazil´s nominal deficit is anticipated to reach nearly 8% of GDP, the highest among major emerging economies and the most heavily impacted by interest costs.

Souza said he also expects a significant number of mergers and acquisitions in Brazil in 2025, but noted that some may take longer to finalize, due to high key rates in the country.

“I think that for the market as a whole, we finished the year with our largest pipeline ever in M&A,” he said, adding that sectors such as energy and education are attracting interest from buyers.

Souza, however, noted that large institutional investors, including sovereign funds, are constantly monitoring the country. “And some of them are saying that, you know, probably we are seeing an entry point in Brazil that we didn't see in the last few years.”

(Writing by Luciana Magalhaes; editing by Diane Craft)