EMERGING MARKETS: IPO pipeline set to be unblocked

The number of IPOs in Latin America’s two largest markets is set to increase this year; investors watch with interest

Investors are turning slightly more bullish on Brazil while Mexico is suffering in the short-term at least thanks to plans to open up key sectors, especially in telecoms and cable television.

The good news for Brazil could open up the IPO market with a pipeline of deals ahead. The Mexican stock market is up 12.34% over the last 12 months. Meantime, Brazil’s market is down close to 16.9% over the same period.

Specific stocks on Mexico’s exchange have been hurt recently by the new government’s plans to enhance competition in key sectors. Telecom giant América Móvil’s shares fell three consecutive days, losing 11%, before rallying yesterday. The declines were echoed in related-sector shares such as Televisa.

David Ross, managing director at fund manager Chevy Chase in Bethesda, Maryland, with $13 billion under management, was set to visit Mexico imminently. He said he was keen to invest but added “it is hard to find decent valuations and the undervalued stocks are outside the mainstream.”

High valuations mean money could flow away into other markets, says Ross. Today, there is cautious optimism on valuations in Brazil with higher economic growth, which should increase to 3% from last year’s 1%. That should help initial public offerings (IPOs).

The biggest deal in the pipeline is from the insurance subsidiary of Banco do Brasil, BB Seguridade, which is slated to launch an IPO in later April and may raise R$5 billion.

The insurer has already selected eight bookrunners including Banco do Brasil’s investment banking arm to bring the deal to market. Allan Hadid, CEO at BRZ Investments in São Paulo, is interested and thinks foreign participation will be high in this well-known name.

There are four other IPOs in the works. Tupy, in the capital goods area, is expected to price in mid-April as is financial services company Smiles. Utility company Alupar and real estate company BHG are both expected in late April. Other large deals include follow-ons from real estate company Multiplan in late March and education provider Abril Educação in late April.

Although investors “are not so harsh on Brazil as they were last year,” Hadid wondered if the market would be able to digest many deals. While the consumer sector is likely to prove popular, oil stocks have been hurt by erratic finds while investors are wary of utilities thanks to government intervention, he said. He believed that there would be between five and 10 IPOs this year.

After a series of pulled deals, the most recent IPO, Linx, performed very well in the immediate aftermarket. Alexander Gorra, senior strategist and head of international platform at BNY Mellon, participated in Linx. The retail-focused company is in the IT sector and has a 20-year track record.

He said there was strong foreign demand for such a small deal, a size usually eschewed by foreign investors who seek liquidity. He is also cautious on the number of deals but is following key ones such as BB Seguridade and Multiplan. “It’s a very demanding market so don’t expect a deluge,” he said. Still, that will beat last year’s record when just three IPOs came to market and two priced below expectations.

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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