Companies that failed to go public in 2021 and 2022 are trying to extend maturities or sell assets amid monetary tightening cycle
06/27/2023
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Douglas Bassi — Foto: Fernando Martinho/Valor
One-fifth of the nearly 90 companies that moved to go public on the Brazilian stock market between 2021 and 2022 before dropping their plans are now restructuring their debt, Valor found.
This picture reflects a scenario in which many companies are struggling as a result of the monetary tightening cycle. In addition, the capital market has become much more restrictive this year in terms of stock and bond issues, following the debacle of retailer Americanas and power utility Light.
Among the companies that tried to raise funds on the stock market but failed are furniture retailer Tok&Stok, cement company InterCement, chemical company Unigel, and food producer Rio Branco Alimentos. All of these companies have begun formal debt restructuring processes. Método Engenharia, which also tried to make its debut on the B3 exchange, is now in court-supervised reorganization after running into financial difficulties.
In recent months, at least 16 of the 86 companies that filed for an IPO and then canceled it have begun or are in the process of structuring capital and selling or merging assets, Valor found. These companies have a combined net debt of R$28 billion.
“Many companies that decided against going public were expected to be in financial trouble at this time,” said Douglas Bassi, cofounder of restructuring consultancy Virtus BR. According to him, the interest rate scenario was very different three years ago. “For some companies looking to raise money on the stock market, issuing shares was a cheaper option than seeking credit in the market.”
Many of these companies planned both a primary share offering – where the funds go into cash reserves – and a secondary offering, where shares owned by existing shareholders are sold.
In hindsight, Roberto Zarour, head of Lefosse’s restructuring department, recalled that indebted companies that turned to the capital markets followed three different paths. Some were able to tap the market and gain some breathing room. In the second group are companies that did not go public because they did not give in to investor pressure to offer a discount on the target price. A third group missed the window and had to withdraw their plans. “One group was already looking to realign its debt structure and legitimately saw a capitalization via an equity offering.”
Some of the companies that dropped their IPO plans have heavy maturities in 2023 and 2024, reflecting the flexibility for payments offered by banks during the most acute period of the pandemic, Mr. Zarour said. “But the bill came due, and with it, some of these companies had to seek a formal restructuring.”
The years 2020 and 2021 were record years for the equity issuance market in Brazil, a side effect of a period of high liquidity in global markets. During the pandemic, central banks injected billions of dollars into their economies to mitigate the economic impact of the health crisis.
During this period, companies of all sizes took advantage of this environment to tap the stock market, as investors demanded new shares in a period of very low interest rates around the world, including Brazil. Some of these companies already had to adjust their balance sheets and expected to raise funds through stock offerings.
In 2022, however, the market began to show signs of more volatility and the process of interest rate hikes – which brought interest rates to 13.75% per year from 2% in March 2021 – closed the window for new IPOs for almost two years. As a result, many companies were unable to launch their offerings and had to seek alternatives. In addition, the corporate debt market has become much more constrained this year, which further reduces the range of alternatives.
Guilherme Monteiro, the partner in charge of capital markets at the Pinheiro Neto law firm, recalled that the fact that several companies that abandoned their IPO plans are now seeking to restructure their debt does not mean that they were struggling when they filed with the Brazilian Securities and Exchange Commission (CVM).
“I don’t think there was anyone with a very serious problem,” Mr. Monteiro said. In his view, some companies that were waiting to go public wanted to improve their balance sheets, but in most cases this was combined with growth plans.
Two large basic sanitation companies that tried to go public during the pandemic are highly leveraged. BRK Ambiental’s net debt-to-EBITDA ratio is 7.3 times, while Iguá’s is 8 times, according to their latest financial reports. Both are looking for alternatives to restructure their balance sheets. BRK declined to comment. Iguá did not reply to a request for comment.
Ana Paula Tozzi, CEO of AGR Consultores, said that companies linked to the retail sector in general are facing significant problems after the pandemic. “The operating costs of these companies increased a lot during this period, when many stores were closed.”
The Americanas debacle has exacerbated this situation by making the financial market fearful and waiting for clarification on new investments and loans, Ms. Tozzi said.
There have been several moves in the industry. For example, the BIG group was bought by Carrefour. Last year, Casa & Video merged with Le Biscuit. Other retailers continue to seek alternatives, either by selling assets or restructuring, in order to survive in the market. The stock market is still an option for some of them. According to sources familiar with the matter, Farmácia Nissei has not abandoned its IPO plans and is waiting for the best moment.
“We have seen credit and capital markets improve recently, but banks are still being selective,” said Mr. Bassi of Virtus BR.
According to sources close to some of these restructuring processes, some companies that wanted to go public leveraged themselves in recent years to continue growing, expecting that the market situation would not change and interest rates would remain low, which did not happen. “Many companies also trusted that the IPO window would reopen and went into debt,” said the same source, who asked not to be named. This is the case of the food company Pif Paf, which put assets up for sale to adjust its balance sheet. The company declined to comment.
In addition, many of the companies that abandoned IPOs in the past two years are not large enough to raise more than R$1.5 billion through shares, an amount that investment bankers consider the minimum to have the necessary liquidity to attract funds. “The reopening of the IPO window will require large issues, as investors will require liquidity to build their positions,” one source said.
Valor sought comments from companies that dropped their IPO plans and are now renegotiating their debt. Coty said it “will continue to monitor market conditions and evaluate future opportunities related to a partial IPO in Brazil.”
In a note, Rio Energy said that “after a thorough evaluation of market conditions and based on its business strategies, the company has decided not to proceed with the IPO at that time. With the support of its shareholders, the company will continue to invest in renewable energy projects and strengthen its internal operations, always focusing on sustainable growth.” Rio Alto said it is always analyzing the best options in the market, be it an acquisition, an IPO or even a debt structure. “Without a doubt, if the market conditions are favorable in the second half of the year, the company will analyze with the banks the best strategy, and does not rule out another IPO.”
Tok&Stok, Unigel, Conasa, Madero, InterCement, and Farmácia Nissei declined to comment.
Granbio, Método Engenharia, Casa & Video, AMMO Varejo did not reply to requests for comment.
*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo
Source: Valor International