More attractive fixed income leads companies like Mercado Livre to use CDBs to raise funds

Anyone who has been looking at the fixed income shelves of brokerages and investment platforms in recent months must have noticed that they are fuller and more diverse. Higher interest rates have attracted investors to investments such as CDBs (Certificados de Depósito Bancário) – a demand that has been noticed not only by traditional banks, but also by companies previously focused on other segments.

This is the case of Mercado Livre, which has invested heavily in CDBs to raise funds and finance its activities.

Between January and May alone, the company’s CDB issuances totaled BRL 5.1 billion – almost as much as the BRL 5.5 billion verified between March 2021 (when this type of funding began) and December. The issuer of the papers is Mercado Crédito SCFI, the company’s finance company.

“It’s a smart way to raise money fast. More companies are discovering this form of financing”, says Catherine Menezes, head of allocation at Braúna Investimentos, for whom the move – which was already being carried out by retail chains such as Pernambucanas – seems to be a trend. “Companies take out this loan via CDBs at lower rates than if they issued debentures, because they are guaranteed by the FGC [Fundo Garantidor de Crédito]”.

Tiago Azevedo, CFO of Mercado Livre in Brazil, explains that the main objective of raising funds with CDBs is to offer working capital to the platform’s sellers. The executive notes that in the case of sales in installments, for example, Mercado Livre is able to advance the funds to the shopkeeper in one or two business days through these funding.

Issues also serve to grant credit to users of the platform, especially on the Mercado Pago credit card, a fintech of Mercado Livre. In the last three months, the average funding was around R$ 1.1 billion per month.

Among CDBs and other products, such as Letras Financeiras and interbank desk operations, Mercado Livre currently has a position of R$ 5.3 billion, a value that, according to Azevedo, the company expects to double by the end of the year.

Inflation-linked and short-term CDBs

The company has also adapted the conditions to the taste of investors. CFO Tiago Azevedo recalls that the first issues offered the CDI rate (fixed income reference) plus a spread, or an additional fee as remuneration. But with the increase in interest in products that offer protection against inflation, the Free Market also started to issue papers indexed to the Broad National Consumer Price Index (IPCA).

“We are going to keep both modalities. What we saw was a great interest in CDBs linked to the IPCA, but the demand for CDI more spread also remains high”, says Azevedo.

Mercado Livre has also prioritized shorter-term CDBs, from three to six months – both because of the cost (which is lower) and the use it makes of the funds it raises. The operations focus on financing the deals closed on the platform and the use of credit cards.

“It makes no sense to have very long CBDs. Due to market dynamics, short-term liquidity and spreads of daily liquidity assets are cheaper. There is greater flexibility and fees are not usually so high,” says Azevedo.

What are the risks?

For the experts heard by the InfoMoneyit is important for the investor to be cautious and choose to diversify issuers when investing in a CDB to reduce risk.

Although the company has e-commerce as its core business, the issuer, recalls financial planner Myrian Lund, is a finance company, with equity separate from electronic commerce.

Myriam also draws attention to the fact that CDBs are covered by the Credit Guarantee Fund (FGC), which returns up to R$ 250 thousand per investor (CPF) and per financial institution, up to a ceiling of R$ 1 million renewed at four years, in case of problems such as Central Bank intervention in the institution.

But it warns: in case the issuer fails, the money is retained for a period and there is no income received on the application during that time. “The ideal is to diversify the issuers”, he says.

eyeing the rating

The institution’s credit risk rating (rating) should also be closely monitored. The ideal, says the planner, is for investors to look for institutions with rating AAA, AA, A and BBB, since products from BB are speculative and tend to be riskier.

Mercado Crédito SCFI, issuer of Mercado Livre CDBs, has rating AAA by Fitch Ratings, which is considered the highest quality level. “Even being in retail, Mercado Livre manages to make a tracking [monitoramento] and, therefore, it is easier to measure your credit risk”, says Catherine, from Braúna Investimentos.

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Type of remuneration: how to choose?

In addition to looking at the issuers’ risk rating, the investor must check whether the intended CDB is fixed-rate, floating-rate or inflation-linked.

In a scenario of high inflation and higher interest rates, Camilla Dolle, from XP Investimentos, notes that there is room for all three types of indexes in investors’ portfolios. “The point is the dose,” she says.

The XP specialist’s preference is for inflation-linked and CDI-linked bonds, which should account for most of the allocation. The first guarantees protection of purchasing power and equity, while the second is indexed to a rate, which should remain high in the short term.

Camilla, however, draws attention to the fact that the yield curve is inverted. Therefore, shorter interest rates are higher than longer ones. In this case, she says, the best thing is to calculate the Income Tax to see if it is really worth opting for a shorter-term bond.

Another detail is the risk of reinvestment. Camilla says that if investors buy bonds that are too short, as the CDBs mature, it may be difficult to find other bonds that offer the same rate.

In XP’s projections, the Selic rate should end 2022 at 13.75% per year and fall back to 8.75% in 2023. Therefore, the ideal is for the investor to invest the money with a clear objective in mind so as not to suffer later with the reinvestment risk.