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| Gerdau follow-on | |
| Value | R$4,985 million ($ 3,141 million) |
| Date | April 12 2011 |
| Bookrunners | Bradesco BBI, BTG Pactual and Itaú BBA |
| return to the Latin America Deals of the Year index | |
Latin American markets promised much but delivered little in terms of equity transactions. Brazil, the traditional engine of ECM activity, flattered to deceive with a successful IPO by Arezzo in January. Then the market fell away as deal after deal has priced at the bottom of or below its pricing range.
After-market performance was typically immediately bad but some deals clawed back lost ground through the year. Away from Brazil there was the helium-like IPO by Arcos Dorados. The deal priced above its range of $13 to $15, at $17, and then kept going, leaping 24.7%. But with Woods Staton, Arcos Dorados’s chief executive and controller, seeing his allocation of 2 million primary shares jumping in value the questions about conflict of interest in the pricing strategy dampens our consideration of the deal as one of the year’s best. Another notable IPO was the stop-and-start IPO of Mexican real estate trust Fibra Uno, which closed in March.
But instead, and unusually for the region, the only ECM deal of the year goes to a follow-on transaction: the Gerdau R$4,985 million ($3.14 billion) follow-on transaction that priced in April and raised eyebrows because of who wasn’t bookrunner: any international bank.
Osvaldo Burgos Schirmer, Gerdau’s executive vice-president and CFO, explains. “We decided to use Brazilian banks as bookrunners considering that those banks have reached global benchmark level,” he says. “Additionally, the best structure came from the Brazilian banks at that time. The combination of Brazilian banks as bookrunners and international banks which were invited as co-managers was a good format to attract the attention and interest of a diversified portfolio of global investors.”
The deal generated a lot of attention because of both its choice of leads and its size, as well as the timing. At almost R$5 billion it was a big deal for Latin America in its own right, let alone as a follow-on. Its timing was also difficult, coming just as the eurozone crisis began to snowball at the start of April.
“We visited more than 200 shareholders/investors in Brazil, Europe and North America, and most of them supported the Gerdau strategy,” says Schirmer. “The timing and pricing was perfect considering what happened later: Europe crisis and depressed stock prices.”
The DCM markets had another good year, with the strong first-half performance front-ending the year’s issuance as volatility restricted market access in the second half. In recent years Latin American issuers have tended to be more active in the first half of the year so the impact of the international risk aversion that began in May was less of an issue than it might have been.
Sovereigns across the region issued standout transactions: Colombia attracted a $7 billion book for a $2 billion deal in July, capitalizing on its newly acquired investment-grade status. In November Brazil executed a skilful re-tap of its 5.625% 2041s from $500 million to $1 billion, attracting a book of more than $6 billion.
