Santander Brasil issued the first letras imobiliárias garantidas (LIGs), Brazilian covered bonds, on Wednesday, a modest BRL24m (EUR5.5m, US$6.3m) of three year paper aimed at testing systems ahead of an anticipated broader pick-up in supply from the Latin American jurisdiction.

[Updated to add Santander Brasil’s near term issuance plans.]

Brazil’s covered bond framework was completed in August 2017 with the approval of secondary regulation to supplement legislation enacted in 2015, following several years of preparations.

On Wednesday Santander Brasil finally opened the market when it registered two tranches of three year paper totalling BRL24m on the Brasil Bolsa Balcão (B3) stock exchange.

Filipe Pontual, managing director of the Brazilian Association of Real Estate Loans & Savings Companies (Abecip), said the issuance by Santander Brasil is cause for celebration.

“We are all very happy that the whole system is working,” he told The CBR. “The regulation works and this shows covered bonds do make sense from the point of view of fund-raising for the institution, so it’s very good news.

“We are expecting issuance to pick up soon,” added Pontual. “Other Brazilian banks are also getting ready to issue and I think we’re still going to see something larger in 2018.”

Santander Brasil’s inaugural issuance was a private placement and Pontual noted that although the next issues will be larger, sizes will remain constrained by burdensome regulations for the public offering of securities – which are typically used for equities and corporate bonds – until the Brazilian Securities & Exchange Commission (CVM) finalises a specific public offering process for covered bonds, which it is expected at some point next year.

A spokesperson for Santander Brasil confirmed to The CBR local reports that the bank plans bigger issues of BRL300m-BRL400m, and that this could happen in the coming weeks.

EMF-ECBC secretary general Luca Bertalot welcomed the creation of the new market.

“We are very pleased to see the Brazilian community moving forward with a concrete market deal, which crowns years of hard work to design a proper legislative framework,” he said. “This represents a very important development for the covered bond market as a whole, as well as for other emerging markets globally, and clearly shows the importance of this asset class in funding strategies worldwide.”

Photo: Former Brazilian footballer Ronaldo becoming a global ambassador for Santander’s UEFA Champions League sponsorship in August with Juan Manual Cendoya, senior executive vice president of communications, corporate marketing and research of Banco Santander and vice chairman of Santander Spain. Credit: Santander