Brazil's capital markets are suddenly looking attractive, at least for corporates seeking new funds. What was once a moribund platform is now evolving into a key source of funding for Brazilian companies, building on the country's new-found economic stability. Eleven companies have tapped the São Paulo Stock Exchange (Bovespa) so far this year, including Brazil's third-biggest private sector bank, Unibanco, while five issues were IPOs.
This builds on last year's activity when 16 companies issued shares on the Brazilian bourse, of which seven were IPOs, one by fast-growing budget airline Gol. According to Alfried Ploger, president of Abrasca, the association of publicly traded companies, Brazil has not seen this level of issuance since before the Asian crisis of 1997. This time, though, the companies are much more solvent. "The next few years are looking quite auspicious," says Ploger. "The Brazilian stock market is enjoying one of its best moments, especially in the secondary market."
Corporate bonds are also doing a thriving trade, increasing issuance of debentures to about $10 billion in the first six months of 2005, compared with less than $4 billion in the whole of 2004. The maturity of commercial paper is lengthening, moving from just a few months to up 10 and 20 years.
Investors have Brazil's economy to thank for this buoyancy. Inflation is in single digits, growth is relatively healthy, and the trade surplus hit record highs last year. The government aims to better that in 2005, even as the Brazilian real reaches 40-month highs against the US dollar.
Meanwhile, Bovespa's decision to introduce the Novo Mercado (New Market) and Levels 1 and 2 as special categories for companies with much higher standards of corporate governance than the law requires has raised the bar for issuers. The Novo Mercado also has special provisions to protect minority shareholders. The government's decision to sell part of natural resources companies Petrobras and CVRD via the stock market allowed workers to buy shares, increasing accessibility for ordinary Brazilians on the debt front, although some big companies still issue abroad, including Bradesco, Brazil's biggest private-sector bank, and Braskem, the country's largest petrochemicals firm, the local market is a much more practicable option as borrowing costs, although high at 20%, fall.
|Brazil equity issuance 2005|
|Company||Sector||Price of offer (in reais)||Start of sale|
|Unibanco||Bank||15.65||Jan 31 05|
|Renar Maçãs*||Food||1.6||Feb 27 05|
|ALL||Logistics||72.5||Mar 23 05|
|Submarino*||e-commerce||21.62||Mar 30 05|
|Ultrapar||Petrochemicals||40||Apr 14 05|
|Gol||Airline||35.12||Apr 28 05|
|Localiza*||Car rental||11.5||May 20 05|
|TAM||Airline||18||Jun 14 05|
|Lojas Renner||Retail||37||Ju1 1 05|
|Energias do Brasil*||Power||18||Jul 13 05|
|OHL Brasil*||Transport||18||Jul 15 05|
|* denominates IPOs|