Investors Press Brookfield for Discount

Brazilian developer Brookfield Incorporacoes has priced a BRL580m follow-on at BRL6.80, a 3.0% discount to Tuesday’s close and 9.5% concession to Monday’s finish. Brazilian stocks took a 2.9% hit Tuesday as investors shunned a new 2.0% tax on incoming capital flows. Bankers on the deal blame the move for the high discount on Brookfield. However, Brookfield underperformed the Ibovespa by 3.6% and then had to offer an additional 3.0% discount, suggesting demand for the offer was tepid. Still, Brookfield succeeded in raising BRL578m in the offering, which consisted of 85m shares – 15m of which were secondary units from by selling holders. The amount falls within the BRL500m-BRL700m the company had targeted in early September. No hot issue was exercised, according to bankers. Part of the discount may be driven by investor dissatisfaction with Brookfield’s inability to meet growth expectations, says a banker away from the deal. A real estate investor at a large equity fund agrees, noting favored companies tend to be those that are seeing a ramp-up in capacity. “We need to discern between those companies that are raising funds to make opportunistic acquisitions and those that are trying to cover up their working capital positions,” he says, referring to specifically to homebuilding. Brookfield says in its prospectus that 40% of proceeds would go toward working capital, while the rest would be used for acquisitions and portfolio investments. PDG Realty’s IPO, priced at the beginning of this month and among the more popular offerings among investors, said just 10% of its follow-on proceeds would be used for working capital, while the rest was earmarked for increasing capacity, construction and new investment. On Brookfield, Itau BBA led, with Credit Suisse, BTG Pactual and Bradesco BBI as joint leads. HSBC was co-manager. Next up for Brazilian equity is CCR, due to price today, and Iguatemi Thursday.