Brazil’s first IPO: a car wreck

So Brazil’s year-long IPO hiatus is finally over. Sadly, the deal for São Paulo-based car hire company Companhia de Locação das Américas just squeaked through. Enthusiasm fizzled and shares were priced at R$9 per share way below the R$11-14 indicative price, raising a lowly R$273m.

That has put a shadow over a wave of Brazilian IPOs. Companies have been waiting in the wings and now need to decide whether to come onstage. Does this applause-free reception to LocarAmerica’s IPO suggest a general malaise or is it more a reflection of the company’s particular (and egregious) debt profile, low liquidity and choice of investment banks?

The deal did not flop for want of underwriters. In spite of offering only a smallish deal, LocarAmerica used investment banks’ desperation to be involved in the new wave of IPOs to its advantage. Bank of America Merrill Lynch; Itaú BBA; BTG Pactual; Banco Votorantim; and Banco do Brasil were all involved. This huge array of underwriters was too local-bank heavy though given that foreigners typically buy 65-80% of new deals. What were Banco Votorantim and Banco do Brasil (which owns a 49% stake in the former) doing on the roster? They seem particularly infelicitous choices as they have little reach outside Brazil.

The small deal size (exacerbated by the low price) also presents a conundrum. International investors tend to shy away from smaller (Brazilian) deals at the best of times. They are too fiddly for portfolios. At the moment, liquidity and volatility fears are heightened making deals like this particularly unwelcome.

Most important, is the high leverage of the company. It has close to R$615m in debt of which nearly R$200m is short-term, according to local Portuguese-language paper Monitormercantil ( The company is also involved in a series of relatively petty disputes with the state of São Paulo, Minas Gerais and at the Federal level over tax owed. Monitormercantil highlights 273 cases, high even by Brazilian standards.

That suggests this deal got blown off course because of specific, one-off factors. It should not have much bearing on the widely-anticipated BTG Pactual IPO, which will be a much better gauge of investor sentiment and is likely to do well. The Brazilian market is still picky but no longer closed.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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