Category: Equity

Last week’s pair of large well-bid Brazilian IPOs had contrasting fates in their first day of trading. Smiles, which raised BRL1.13bn ($565m) but priced near the low end of the range, was up 6.0% to BRL23.00 Monday. BB Seguridade, meanwhile, sank 2.4% to BRL16.60, after pricing its BRL11.48bn IPO near the top of its range last week. The carve-out of Banco do Brasil’s insurance business drew 3x demand, and was bought 65% by international investors. Smiles, the mileage reward business of airline Gol, was multiple times oversubscribed. Brazil’s Bovespa was up 1.17% Monday.

Banco do Brasil’s BB Seguridade unit has priced a BRL11.48bn ($5.74bn) IPO near the top of the range and has used full overallotment options to give LatAm its largest IPO in almost four years. The insurance business carve-out is offering 675m secondary shares at BRL17.00 each, according to the CVM, above the midpoint of the BRL15.00-BRL18.00 range. The total includes a 15% greenshoe and full use of the 20% hot issue option. The sale was heard getting at least 2x in orders. As with most Brazilians daring to IPO, the business is widely considered attractive, with most of the questions leading up to the sale having revolved around the valuation. “This is a good company with solid numbers. Bank insurance is growing more quickly in the last few years than independent insurance companies,” says a Sao Paulo equity portfolio manager looking at the deal. Banco do Brasil’s pitch is that the “bancassurance” model uses the state-controlled bank’s wide reaching client channels to sell insurance products and brokerage services. Premiums sold in Brazil were up 13.4% in 2012 from 2011, the bank says, and insurance penetration in Brazil, at 1.7%, is well below developed markets. Banco do Brasil has consolidated its insurance businesses into the single BB Seguridade entity to lower costs, increase scale and be better prepared for expansion and competition with the likes of Bradesco. BB Seguridade controls Banco do Brasil’s two insurance joint ventures with Madrid-based Mapfre, and the bank has said it also plans to also expand into dental and health insurance brokerages. The entity directly controls two holdcos, one responsible for insurance brokerage activities and the other for all other insurance operations. The transaction should result in a 29% free float. Banco do Brasil, BTG Pactual, Bradesco, Citi, Itau, and JPMorgan were global coordinators on the sale, with Brasil Plural and Banco Votorantim as joint bookrunners. It is the largest IPO in LatAm since Santander Brasil raised

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.