Brazil: Prospects brighten for retail equity investment

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By:
Chloe Hayward
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Local retail investors will become a bigger force in Brazilian equity offerings, according to senior investment bankers, after Banco do Brasil completed a transaction last month that attracted record interest from individuals in a single deal.

More than 40% ($760 million) of the bank’s $1.9 billion offering, which included a greenshoe option, was placed with local retail investors. Bankers reckon that many intend to hold on to their shares. "The retail investors that usually participate in IPOs often go in and try to get a quick turnover on their money. But for this most recent jumbo offering the bank has attracted a more long-term orientated retail audience, such as the father who wants to invest $1,000 for his son in 10 years’ time," says Evandro Pereira, managing director, head of Latin America, equity capital markets at UBS, which co-managed the deal with BB Banco de Investimento and Deutsche Bank.

In the weeks preceding the issue, Banco do Brasil undertook an extensive advertising campaign on prime-time TV featuring famous actresses to further enhance the trusted brand name of the bank. Personnel in each branch have also been trained to execute trades and educate investors about the risks to encourage greater retail participation.

Local institutional investors took a large proportion of the deal too. These local investors, like their retail counterparts, have been pushed into considering equities by falling interest rates, which have made fixed-income returns less attractive. Equity offerings are also supported by high-net-worth individuals who are inclined to invest more onshore than they were in the past.

This is not the first time that Banco do Brasil has found strong local retail support. Twelve months ago, Brazil’s biggest bank issued $1 billion-worth of shares, of which 30% was placed with retail investors.

The retail market first took a serious interest in the equity market when Petrobras undertook a $4 billion partial privatization in 2000 but these retail investors were given additional incentives, such as access to their compulsory savings accounts for investment, which is collected by law to save for unemployment and retirement payouts, and is normally inaccessible.

Banco do Brasil’s bank’s latest deal offered no such incentives but there were high levels of demand, with the stock trading up by 9.5% within a day.

The increase in interest from retail investors will be good news for the Bovespa Mais, an exchange that was established for small companies that want to raise less than $100 million. The exchange has yet to have an IPO listed on it. "Any listing that could go on the Mais is too small for institutional investors because it will have no liquidity. Any such deal will depend almost entirely on local retail investors and these investors may not be quite educated enough yet," says Pereira.

But one company hopes the tide is turning. Agrichemicals concern Nutriplant announced in December its plans to list on the Mais but as yet there are no further details of when it will come to market and how much it hopes to raise.

Some bankers are not so optimistic. "I think this deal will struggle to get off the ground. The retail investor market is growing in the right direction but these investors still need to learn that these small deals are long-term projects, not just a short-term ride," says one.