Brazilians Prep for Big IPO Day

Two of Brazil’s largest and most anticipated IPOs of the year are scheduled to price tonight, in what the market hopes is another sign of a revival for new issuance conditions. Despite concerns about both issuers, both Banco do Brasil’s BB Seguradade and Gol’s Smiles covered their order books some time ago. Pushed along by domestic pension fund demand, the BB Seguridade insurance business carve-out could be the region’s biggest IPO since Santander Brasil in 2009. It is offering 500m secondary shares, and would raise BRL9.49bn ($4.70bn) at the midpoint of a BRL15.00-BRL18.00 range if a 15% greenshoe is included. Buyers are betting that bank-linked insurance products and brokerage services will continue to see strong expansion in the years ahead as the middle class continues to grow. “This is a very good business. The question is the role of the government,” says an equity portfolio manager, referring to the government control of Banco do Brasil and the implications for minority holders. He describes the valuation as “reasonable” in the bottom half of the price range. Banco do Brasil, BTG Pactual, Bradesco, Citi, Itau and JPMorgan are global coordinators on the deal, with Brasil Plural and Banco Votorantim as joint bookrunners. The deal should result in a 29% free float for the business that generated BRL1.93bn operating revenue in 2012. Gol, meanwhile, has had to recruit General Atlantic to buy half of the Smiles base deal. The private equity firm is taking BRL400m. The sale of 44m primary shares would raise BRL1.03bn at the midpoint of a BRL20.70-BRL25.80 range if a 15% greenshoe is included. Since the GS announcement, the deal has been seen getting done comfortably, despite Gol’s recent cash and credit profile troubles. “The problem with Smiles is not Gol, but [Tam’s] Multiplus. This business model still needs to be proven,” says a Brazil-based investor passing on the deal. The main question, he says, is how Smiles and Multiplus will face competition from mileage