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BANKING

Why Brazil is all abuzz

Its capital markets are a hive of activity – with record levels of IPO activity, decreasing funding costs and a first hostile takeover attempt. But many of the most active companies say that the queen bee of government is too strict: tax and infrastructure problems are preventing the country from reaching full potential. Lawrence White went to São Paulo and Rio de Janeiro to investigate.

Banks consolidate in preparation for M&A surge

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BRAZILIAN FOOD COMPANY Perdigão published a two-page newspaper advertisement on July 21, smugly proclaiming “Perdigão: everyone loves it. Even our competitor.” Perdigão was gloating because it had just repelled Brazil’s first ever hostile takeover bid, saying that rival Sadia’s offer of R3.9 billion ($1.8 billion) was too low.

This might come to be regarded as a pivotal moment in the rapid development of the country’s capital markets. Companies in Brazil are becoming much more sophisticated in their financing, they are demonstrating much more evidence of long-term strategic thinking and they are expanding with increasing confidence or even aggression. Those that have already grown too big for Brazil have burst free and are establishing themselves as global players. GDP growth is low, and taxes too high for some, but Sadia’s ABN Amro-advised takeover bid is a telling example of Brazilian companies’ increasing willingness to deploy capital markets techniques to further their ambitious aims.

There were six IPOs in 2003 in Brazil, according to Dealogic; in 2006 there have already been 27. In 2003 about 400,000 contracts a day were traded on the Bolsa Mercadorias & Futuros (Brazil’s derivatives exchange); in 2006 the figure is already close to 1 million.


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