Real economy businesses are expected to come back more strongly than technology companies

09/05/2022

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After a sluggish year period for IPOs, investment banks project that capital markets will accelerate again as of November. After the elections, regardless of who wins the presidential race, companies will start to resume plans to raise money in the Brazilian stock market, executives told Valor.

Despite the many uncertainties including monetary tightening abroad, with high interest rates to combat inflation, the risk of recession, and the Russia-Ukraine war, investment banks see room for up to 35 share offerings in Brazil next year.

Banks see real economy businesses, especially those in infrastructure and commodities, as candidates for financing through the stock exchange. On the other hand, technology companies will take a little longer to resume the levels seen before the tech crisis.

Basic sanitation companies BRK Ambiental and Aegea are among the candidates to follow this path, sources in the financial market say. BRK, which has expanded through acquisitions and tried to go public earlier this year, may resume its IPO plans next year. CBO, an offshore vessel operator controlled by Vinci and Pátria, is expected to follow the same course. The market sees the exit of the funds as a natural path.

Vitor Saraiva — Foto: Silvia Costanti/Valor

Vitor Saraiva, head of equity capital markets at XP, is among the most optimistic executives in relation to the resumption of deals as of 2023. “I see a constructive scenario in the local market, with macro data indicating falling inflation and GDP growth of up to 2% this year. Brazil is in a good position, among emerging countries, to draw some foreign capital. And second-quarter earnings reports indicated improved results for more than 70% of companies,” he said.

Some companies that filed for IPOs but failed to move forward with the offerings may resume their plans soon, Mr. Saraiva said. “We saw 109 companies giving up in 2020 and 2021.” He foresees 10 to 20 share offerings, one-third of which could be IPOs, in the first half.

UBS has found at least 30 companies eligible to tap the market in the following months, including 10 to 15 that could potentially do so next year, CEO Daniel Bassan said. Four of these companies may make their market debut.

A preliminary estimate by Itaú BBA suggests an even greater potential: 25 to 35 IPOs and follow-ons could materialize next year, raising R$60 billion to R$80 billion, said Roderick Greenlees, head of investment bank.

Future share offerings are expected to bring larger checks – above R$1 billion, unlike the last two years, when the stock exchange saw smaller deals. Most newcomers to the stock market face strong devaluation.

Citi and Morgan Stanley declined to make any projection. Marcello Lo Re, head of Brazil equities capital markets at Morgan Stanley, recalled that IPOs and follow-ons were weak all over the world, including in the United States. “The trajectory of high interest rates has inhibited investors, who are averse to risk,” he said.

The resumption of share offerings in the U.S. market will set the tone for market recovery in other countries, the Morgan Stanley executive said. “You also have to know the appetite of companies seeking to tap the market.”

The resumption of the capital market in 2023 depends on a number of variables, said Eduardo Miras, head of Brazil investment bank at Citi. Among them, clearer movement of falling inflation and the end of monetary tightening in Brazil and abroad. The commitments of the future federal administration to fiscal austerity may also stimulate deals in the market.

It is almost a consensus in the financial market that this year will end without an IPO, due to the uncertainties caused by the elections. The year will be marked by follow-ons – the most emblematic of which was that of Eletrobras. Brazil’s main power utility raised R$33.7 billion in June in one of the largest deals in the capital markets around the world this year.

Secondary offerings are expected to raise R$60 billion to R$65 billion this year if new offerings materialize by December.

“Companies halted offerings in the third quarter because of the elections and will have a short period of time between the publication of third-quarter results and the filing of documents that must be sent to the Securities and Exchange Commission of Brazil [CVM],” Mr. Greenlees said.

Last year, considering IPOs and follow-ons, 76 deals raised nearly R$130 billion. In 2020, companies raised R$117 billion through 51 share offerings.

Aegea Saneamento said it is constantly studying the possibility of going public and that such a move depends on some factors, like market conditions, use of funds, and a decision by shareholders. “It is a relevant part of our strategy the management of the capital structure, and tapping the stock market is one alternative studied. Currently, Aegea is registered as a public company at CVM [authorized] to issue bonds and debentures.”

In a recent interview with Valor, CBO said that it is studying an IPO. BRK declined to comment.

*By Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/