Brazil’s busiest week for IPOs in years marked by mixed fortunes

Brazil’s busiest week for initial public offerings in nearly four years ended on February 10th with mixed results for issuers, faced with wariness among foreign investors toward Latin America’s largest equity market amid fallout from political turmoil.

Rent-a-car company Movida Participações SA and medical laboratory Instituto Hermes Pardini SA launched their IPOs despite pressure for lower prices. But tough market conditions led Movida’s rival Unidas SA to scrap its own listing on February 10th.

Aside from overlapping IPOs between the rental car rivals, the pricing of a large 4.1 billion real ($1.32 billion) follow-on offering by CCR SA (CCRO3.SA), Brazil’s No. 1 toll road operator, might have hampered demand for the IPOs, four people familiar with the deals said.

Investors stung by a string of deals in recent years that failed to deliver promised returns are wary of IPOs in Brazil. Just over a third of the 138 IPOs priced in the past decade yielded returns above Brazil’s interbank lending rate, Thomson Reuters data showed, with the remainder losing part or all of the amount initially invested.

This week was the busiest for local equity offerings since April 2013. Movida’s shares, which plunged on February 8th – their first day of trading – have since recovered and booked a 2.7 percent gain on the week.

Extending the current wave of offerings hinges on President Michel Temer’s ability to push ahead with ambitious reforms to lower the country’s risk perception, bankers said.

“This week showed we are still in a buyers’ market and investors still feel more comfortable taking existing risk than new one,” said one of the people, who asked for anonymity to speak about the transactions.


Stronger equity markets and companies’ need to fund growth or reduce debt are the “fundamental catalysts in place” sustaining IPO activity in Brazil and Latin America this year, according to Pedro Martins, chief Latin America equity strategist for JPMorgan Securities.

However, companies seeking to tap the local equity markets face a balancing act: how to offer acceptable risk and return as Brazil enters a third straight year of economic recession and global market turmoil escalates under U.S. President Donald Trump’s trade protectionist stance, bankers said.

Such uncertainty is keeping foreign investors – traditionally the main buyers of Brazilian IPOs – on the sidelines. Foreigners snapped up only 15 percent of the Pardini deal, a fraction of the 67 percent participation ratio they had about a decade ago, the people said.

The mixed results of this week’s IPOs may shed light on how a list of long-awaited listings should come to market. Those companies include airline Azul Linhas Aéreas Brasileiras SA, securities firm XP Investimentos SA and the Brazilian unit of France’s Carrefour SA.

The companies declined to comment.

A new wave of IPO requests should resume in late March or early April and stretch for longer should market conditions prove favorable, bankers at Itaú BBA SA and Banco Bradesco BBI SA, the country’s largest equity underwriters, recently told on an interview.

Movida’s IPO on February 6th raised a smaller-than-expected 645 million reais, after controlling shareholder JSL SA was forced to lower the deal’s pricetag. A member of JSL’s controlling family subscribed about 15 percent of the deal to ensure its completion, Reuters reported, citing sources.

On February 9th, Hermes Pardini clinched about 878 million reais at a price slightly above the floor of the suggested price range.

At the floor of the price range, investors bid the equivalent of three times the amount of shares on offer, Reuters reported earlier in the day, citing sources.

In the case of Unidas, shareholders Gávea Investimentos Ltda, Vinci Partners and Kinea Investimentos Ltda shunned a suggestion from bankers to cut the price and secure demand for the IPO. They are working on ways to help the shareholders exit their combined 45 percent stake in Unidas, the people said.

Source: Reuters Brazil.