Investment: A very specific appetite for Latin American equity

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By:
Rob Dwyer
Published on:

Only Latin American corporates that offer clear business models and high dividend yields are finding investor interest as risk aversion blights the region's primary equity capital markets.

Three Latin American equity transactions in mid-July demonstrate just how selective investors are being. Brazilian electricity transmission company Taesa sold R$1.76 billion ($869 million) of equity at the middle of its range (the deal was dubbed a ‘re-IPO’ because of the small amount of listed shares) and Mexican commercial real estate company Vesta sold a Ps3.3 billion ($245 million) IPO, pricing at the bottom of its range. However, in the same week Biosev, Louis Dreyfus’s Brazilian bioenergy subsidiary, failed to price despite 40% participation of controlling shareholders.

"There is a lot of liquidity out there but there is no appetite for risk. You see bond yields in developed countries having negative yields and so risk appetite is simply not there," says Ignacio Mendive, head of cash equity in Latin America and head of equities in New York for Santander. The bank managed the Taesa and Vesta transactions and was bookrunner on the Biosev deal. "For deals to be successful they need to be in certain sectors, with clear business models and projections. They also need strong management teams with proven performance and high dividend yields. These are the stories that appeal to investors. If you have those characteristics, there is liquidity; there is investor interest and you can get deals done.

Taesa benefited from these characteristics, and investors were particularly attracted to the stock’s high dividend payments.

Does Mendive think that Vesta also benefited from the current focus on Mexico? "Absolutely – when you look at traded volumes and foreign interest in Latin America we have seen contraction in volumes in Chile and Brazil of between 10% and 20%. But volumes in Mexico are up about 20%. There is a significant resurgence in appetite for Mexican names and significant outperformance from some Mexican companies and sectors."