Category: Equity

Smiles, the mileage reward program of Brazilian airline Gol, has priced a BRL1.13bn ($565m) IPO in the bottom half of the price range. Exercising the full overallotment option, the transaction raises much needed funds for the airline. The carve-out is offering 52m primary shares at BRL21.70 each, according to the CVM, versus a BRL20.70-BRL25.80 range. The share total assumes a 15% greenshoe and includes a 20% hot issue option. The deal was heard mutliple times oversubscribed, thanks to a push from the commitment of private equity shop General Atlantic (GA) to buy at least BRL400m. “The value Gol wants is not giving enough margin for error,” a Brazil-based investor says of the price range. Many investors look at peer Multiplus and question the sustainability of the model, particularly with competition from programs offered by Brazil’s big banks. The agreement with GA was contingent on a nine month lock-up, Smiles hitting the minimum of the price range and the base deal portion of the IPO reaching BRL800m, among other conditions. The proceeds from the sale will go to funding the purchase of the passenger loyalty assets currently held by Gol’s VRG unit. Banco do Brasil, Bradesco, Credit Suisse, Deutsche Bank, Itau, Morgan Stanley and Santander managed the IPO, which was expected to result in a 39% free float.

Abril Educacao has priced a BRL585m ($290m) follow-on, giving up only a 1.9% discount. The educational arm of the Grupo Abril media conglomerate is selling 3.1m primary units and 9.9m secondary units at BRL45.00 each, according to the CVM. The total includes a 15% greenshoe. Pricing came close to Wednesday’s BRL45.88 closing price. The transaction was oversubscribed, according to people following it. The for-profit education sector is one of the consumer growth plays on which investors remain optimistic, with room for large players to expand. Abril, active in education and educational publishing, plans to use the primary proceeds to make acquisitions. The secondary shares in the deal are sold by members of the controlling Civita family and investment funds managed by BR Investimentos and Banif. Bank of America Merrill Lynch, BTG Pactual, Bradesco, Credit Suisse and Itau managed the deal. Today the heavy week of new ECM issuance caps off with the IPO carve-outs of Banco do Brasil’s BB Seguridade insurance business and Gol’s Smiles mileage loyalty program.

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

Order books appear to be in good shape ahead of a BRL600m ($297m) equity follow-on offering from Brazil’s Abril Educacao, according to people following the sale. The educational unit of the Grupo Abril media conglomerate is scheduled to price today 3.1m primary units and 9.9m secondary units, indicating a BRL600m deal based on Tuesday’s BRL46.19 closing price. The total assumes a 15% greenshoe option. A 20% hot issue is also available. The secondary shares are to be sold by members of the controlling Civita family and private equity funds managed by BR Investimentos and Banif. Abril plans to use the primary proceeds to make acquisitions. Bank of America Merrill Lynch, BTG Pactual, Bradesco, Credit Suisse and Itau are managing. Abril raised $273m-equivalent in its 2011 IPO.

Brazilian shopping mall operator Iguatemi is planning to raise more than BRL400m ($198m) through an equity follow-on. The issuer has taken initial steps to register the sale of 16m primary shares, it says, a transaction that would raise BRL442m at Tuesday’s BRL24.00 closing price if a 15% greenshoe is added. Bradesco, BTG Pactual, Credit Suisse and Itau have been hired to manage the sale, for which the timing remains to be determined. In February, Iguatemi raised BRL450m in the domestic bond market. It will hope to follow in the wake of peer Multiplan, which priced a well-received BRL705m follow-on last month.

Brazil’s Alupar Investimento has priced a BRL851m ($421m) IPO, clinching enough demand by Monday afternoon to price at the bottom of the range. The holding company for electric transmission and generation operations is selling 40m primary units at BRL18.50 each, according to the CVM, assuming the exercise of a 15% greenshoe. The price comes against a BRL18.50-BRL21.50 range. A unit is made up of one Alupar ordinary share and two preferred shares. Transmission companies appear to be an easier sell among energy assets, though investors say the energy sector is still more challenged to get deals done than the consumer plays pricing later this week. “The rules for transmission have mostly been clarified, and that risk is not much of a concern here. Alupar’s valuation, though, is not as attractive as Taesa,” says a Brazil-based investor looking at the deal, and comparing it to Cemig’s Transmissora Alianca de Energia Eletrica (Taesa). About 87% of Alupar’s revenue comes from transmission operations, consisting of 5,700km of lines in Brazil and Chile. It also operates 179 megawatts of generation capacity and has 484 megawatts under development, through five hydroelectric assets in Brazil and Colombia and one Brazilian wind farm. Alupar is raising funds to be used 80% for obtaining and developing new concessions, and 20% for acquisitions. BTG Pactual, Credit Suisse, Goldman Sachs, Itau and Santander managed the transaction, which the issuer had filed for last year before waiting until 2013 to pull the trigger. Alupar is 93% owned by the Godoy Pereira family, with the remainder held by the FGTS workers’ guarantee fund. Monday’s deal kicks off a busy week for Brazilian ECM. Abril Educacao is scheduled to raise a BRL600m follow-on Wednesday, and BB Seguridade and Smiles are set to follow Thursday with IPOs expected to raise BRL9.49bn and BRL1.03bn, respectively.

The IPO carve-out of Gol’s Smiles mileage loyalty program has its order books covered heading into pricing next week, according to people following the sale. Though the airline parent has had its share of bad news, investors have expected the Smiles IPO to get done after the announcement that private equity firm General Atlantic would kick in for BRL400m ($198m), or about half the expected base deal. With pricing scheduled for April 25, Smiles plans a sale of 44m primary shares at BRL20.70-BRL25.80 each, according to a prospectus, meaning a BRL1.03bn sale at the midpoint if a 15% greenshoe is included. A 20% hot issue option is also available. General Atlantic’s participation is contingent on a nine month lock-up, Smiles hitting the minimum of the price range and the base deal reaching BRL800m, among other conditions. The proceeds from the IPO will go to funding the purchase of the passenger loyalty assets currently held by Gol’s VRG unit. Banco do Brasil, Bradesco, Credit Suisse, Deutsche Bank, Itau, Morgan Stanley and Santander are managing the sale.