Category: Equity

With domestic growth accounting for about 60% of Brazilian GDP, bankers say several sectors are in play for IPOs. Gustavo Sousa, MD of Banco do Brasil’s ECM operations, identifies protein and healthcare as sectors where IPOs are being discussed. In homebuilding and real estate, Sousa sees more follow-ons than IPOs, but says he knows of a company plotting an IPO. In the auto sector, there is the likelihood of international companies listing locally, following the success of Santander. The Autometal unit of Spanish auto parts manufacturer CIE Automotive announced in May plans to float in Brazil. Oil and gas – where Repsol is considering a local listing of its Brazil assets – should also see IPOs as the supply chain readies for massive Petrobras exploration over the coming decade, says Sousa. Enrique Corredor, head of BTG’s ECM syndicate notes that, in addition to Repsol, consumer products companies Avon and Johnson & Johnson should be considering local Brazil spinoffs via an IPO. As more demand comes from locals, Brazil will begin to reverse the trend of having fewer issues from larger entities. “We’ll see a trend that resembles India and China, with a higher number of deals and smaller deals, that can weather global volatility better,” says Matias Santa Cruz, executive director for Latin America ECM at UBS. The number of IPOs under $100m was only 9% of Brazilian deals this year and last, Santa Cruz says, compared to about 50% of IPOs in China and India. BTG’s Corredor adds that the average Brazil IPO size is $500m in 2010, down from $2.1bn last year. Meanwhile hedge funds are returning. They are important providers of liquidity, accounting for about 45% of allocations from 2010 IPOs, after dropping as low as 30% in 2008, from 50% pre-crisis, says Corredor. Santa Cruz expects LatAm ex-Brazil to pick up, perhaps in 2011, with possibility in Mexico, Colombia and Chile. Souza, Corredor and Santa Cruz spoke last week at a panel organized by the Brazilian-American Chamber

Canadian oil company Canacol is set to start trading on the Colombian Stock Exchange (BVC) July 22, says a company spokesman. Canacol, which already trades on the TSX Venture Exchange, will not issue new shares. Instead, it will allow common units already issued to be traded on the BVC. The company has 11 exploration and production blocks in Colombia and plans to invest $37m in the country. It also has operations in Guyana and Brazil. Citi is handling the share listing on the BVC.

Mexico’s Grupo House is planning to launch its local IPO Thursday, raising a maximum of MXP562m. The restaurant operator plans to sell 88.9m shares, or 115.5m if a greenshoe and hot issue are exercised. The price range is MXP4.50-MXP5.50, according to regulatory documents. This represents a greater amount of shares than in earlier filings, which had 50m being offered, at a lower range than previously expected, down from MXP7.00-MXP9.00. The issuer would be the latest to take advantage of regulatory changes offering the SAPIB designation and making it easier for smaller companies to list on the bolsa. BofA Merrill Lynch is managing the transaction. House had Ebitda of MXP39m in 2009, down from MXP52m in 2008, according to filings. It plans to use proceeds from the IPO to repay MXP195m in bank debt with Banco Invex, and the remainder for investing in its business. House operates 97 restaurants under the Arrachera House, Taqueria House and Sixties brands. It had planned to raise funds through the CCD market last year, but is among many smaller issuers changing tack now that there is easier access to institutional investors via the bolsa.

Canadian oil company Canacol Energy has received a “speculative buy” rating from Medellin-based brokerage Bolsa y Renta ahead of its listing on the Colombian Stock Exchange (BVC) – which is expected to take place within the next 2 weeks – says equities analyst Carlos Gonzalez. Bolsa y Renta has a COP2,080 per share target price for Canacol’s stock. Canacol, which already trades on the TSX Venture Exchange, will not issue new shares. Instead, it will allow common shares that are currently issued to be traded through the BVC. The company has 11 exploration and production blocks in Colombia and plans to invest $37m in the country. It also has operations in Guyana and Brazil. Citi is handling the BVC listing. Canacol closed Monday at CAD0.88 (COP1,563).

As local and international investors hoard cash for a $30bn Petrobras follow-on, the chance of new Brazil equity supply is slim short-term, say ECM bankers. The state-controlled oil producer is expected to issue in September, and the market is looking to the deal to provide a price benchmark. “There should be no more IPOs this summer – everyone is waiting for Petrobras,” says Enrique Corredor, head of BTG’s ECM syndicate. “There is a lot of pent up demand. I think the [Petrobras] deal will go well, and open up appetite for the IPO market,” the banker adds. He notes that recent jumbo follow-ons from Itau and Banco do Brasil (BdB) have whet investor appetite. Pricing is a challenge without comparables, says Matias Santa Cruz, executive director for LatAm ECM at UBS. It will get easier once issuance picks up, as happened during the 2005-2007 wave of Brazil IPOs, Cruz adds. Corredor points out that the average IPO has been 1.4x subscribed this year, versus 3.8x in 2007, and that most have priced below target. “Bankers have a responsibility to advise issuers to come with more realistic valuations. Moving forward, IPOs you will see will be more realistic in valuation expectations,” he adds. Despite a tendency for issuers to seek pricing well above what investors want to pay, he notes that recent new issues traded up, except for shipbuilder OSX. They are also beating the Bovespa, showing investors that there is money to be made in Brazil. Corredor and Santa Cruz spoke Thursday at a panel in New York organized by the Brazilian-American Chamber of Commerce.

A July 9 Daily Brief entitled “BM&FBovespa Whispers Price on 10-Year” incorrectly states the initial price talk on BM&FBovespa’s $612m 10-year. The deal was whispered at T+275bp area.

Brazil’s Renova Energia has priced a scaled back IPO of 10m units at BRL15.0, the low end of the range, to raise BRL150m. The renewable power generation specialist was pitching a price of BRL15.0-BRL17.0 for 10.0m units plus a potential 3.5m greenshoe and hot issue shares. The 2.0m unit hot issue was not exercised, but the 1.5m shoe may be in the next 30 days. At the top end of the range, it would have raised BRL229.5m. This compares to 27.5m units at BRL19.0-BRL25.0 that Renova sought earlier in the year. Renova pulled the earlier attempt amid market volatility and investor pickiness in the wake of other high-profile shortfalls in Brazil’s equity market including OSX. Santander and Bank of America Merrill Lynch managed the deal, which was heard sold to a limited group of investors.

Brazil’s BM&FBovespa is pricing today an issue of $612m in 10-year bonds, whispered at T+275bp area, according to people close to the trade. The book was heard exceeding $1bn Thursday afternoon. Proceeds will be used to finance the acquisition of a 5% stake in US-based CME Group. In February, BM&FBovespa raised its ownership in the CME to 5.0% from 1.8%. Bank of America Merrill Lynch, Bradesco, HSBC and JPMorgan are the leads on the BBB+/Baa2 bond issue.