Latin America: Brazil IPOs slowly building momentum

By:
Rob Dwyer
Published on:

Economy recovering; high-quality companies in pipeline.

Brazil’s IPO market is slowly building momentum and some equity bankers expect the second half of the year to produce a large volume of deals.

In April, Alupar Investimento (led by BTG Pactual, Credit Suisse, Goldman Sachs and Itaú BBA) and Biosev (led by Banco de Brasil, Bradesco BBI, BTG Pactual, Itaú BBA and JPMorgan) both managed to close IPOs. Alupar, an electricity generation and transmission company, closed at the bottom of its range to raise R$850 million ($422 million) and Biosev, the bioenergy subsidiary of Louis Dreyfus Commodities, priced a R$814 million deal.

The Biosev transaction was the company’s return to the market following an aborted attempt in July 2012. Its success this time around was greatly helped by the inclusion of an innovative put option that effectively guarantees investors will not lose money in the first 14 months.

Before these April deals the only other IPO transactions had been for software companies, with Linx raising R$528 million in February (led by BTG Pactual, Credit Suisse, Itaú BBA and Morgan Stanley) and Senior Solutions piggy-backing on the success of the Linx transaction to become only the second Brazilian listing on the Bovespa Mais, a small-cap platform, with a deal for R$62 million (led by Banco do Brasil and Banco Votorantim).

Brazil’s equity market hasn’t been helped by the net outflows from Brazilian equity funds in 2013 by international investors which had, by early April, reached more than $1.2 billion. However, despite the uneven performance of the IPOs this year to date the market is recovering from its nadir in 2012. Brazil ECM volume reached $3 billion from 12 deals in the first quarter of the year, up from total volumes of $312 million in the first quarter of 2012, according to Dealogic. ECM banking revenue recovered to $51 million from $6 million in the same period in 2012.

There are also more investor-friendly, consumer-consumption-based companies about to price, from Smiles (airline Gol’s loyalty mileage programme) and BB Seguridade (the insurance business of Banco do Brasil). “2013 will be like 2009 [in terms of ECM issuance in Brazil], which was a year that had strong pent-up demand as well as a strong pipeline of issuers,” says a Brazilian-based ECM banker. “The economy is recovering and with a lack of negative news flow from abroad – and with high-quality companies ready to come to the market, we will see a strong second half to the year.”