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Capital Markets

Equity capital markets: Brazil suffers IPO indigestion

Equity issuance volumes, especially IPOs out of Brazil, will pick up in the second half of the year, according to senior bankers in Latin America, after the credit crunch put a halt to the region’s four-year boom.

They warn, however, that the market will only be receptive to big, liquid transactions, at least $500 million in size, and by companies based in certain industries, such as agribusiness and oil exploration and production. "The Brazilian IPO market is about finding the right industry and the right size," says Evandro Pereira, head of Latin American equity capital markets at UBS, who reckons that there could be up to 20 IPOs out of Brazil this year. That compares with 75 in 2007. Many of those were the types of issues that Antonio Quintella, head of Credit Suisse’s Brazilian operation, believes will be hard to execute this year. "In the last couple of years a lot of early-stage companies have listed. We’ll see some of those but more likely we’ll see larger issues, given the premium on liquidity," he says.

Pereira agrees: "The Brazilian market is having indigestion problems. Small-sized IPOs are having difficulties. The market is not ready for second-tier stocks."

Low prices

So far this year, not a single deal out of Brazil has been priced within the indicative range. Consumer goods company Hypermarcas, for example, priced its IPO in April at a 15% discount to the bottom of the suggested range.