Category: Equity

Despite last week’s poorly received shipping unit float, Brazilian tycoon Eike Batista will likely push ahead with a plan to IPO his holding company, EBX. The holdco owns majority stakes in 5 publicly traded companies with a combined market cap of BRL75bn, say bankers and investors familiar with the Batista empire. The weak performance of OSX’s IPO versus expectation – it raised BRL2.8bn, 62% less than what was originally targeted – led some to presume an EBX float was off the table. However, some investors think differently. “I don’t think there’s any contamination here,” says a Rio-based portfolio manager with BRL4.5bn under management. “[The OSX IPO] doesn’t mean the market is closed for EBX,” he adds. “EBX management will have to demonstrate what their differential is, and that the holdco is not merely a sum of the [publicly listed parts] but rather a company with a unique asset that can generate growth,” he adds. The investor notes a case can be made for investing in Brazil holdcos, pointing to Telemar, Bradespar, Metalurgica Gerdau and Itausa as examples. A banker close to Batista claims EBX will offer investors a way to participate in the future growth spurts of his projects. “Investors will participate in the value creation since the very beginning, when [Eike’s] projects often see the steepest growth curves,” he notes. EBX’s stakes in the publicly listed companies are worth $30bn, he estimates, with another $10bn or so in unpriced assets like real estate, forestry, entertainment and gold ventures. The public value of EBX could settle at around $30bn assuming a 25% or so discount to recognize the fact it is a holdco, and not an operating company. An investor says Credit Suisse is among banks tapped to lead, and that an early version of a prospectus for EBX’s IPO has already been produced.

Though LatAm indices may be down year-on-year and there are some bearish fundamental influences, inflows are supportive for equity, according to major EM investor Aberdeen. “Given the headwinds of slow economic growth and rising interest rates, I wouldn’t be surprised if [the Mexican Bolsa and Bovespa] were down year-on-year,” Devan Kaloo, head of global EM equities at UK-based Aberdeen Asset Management, tells LatinFinance. “But equally probable is that given the ridiculously loose monetary policy we’re seeing in the world today – and the fact that in a relative view emerging markets look better than just about anything else – we’ll probably see more money flood in and the asset classes continue to do quite well,” he adds. Aberdeen has $5.5bn under management in LatAm equity and is overweight Mexico and neutral Brazil. Kaloo views inflation as the biggest threat to the region, given the effect it can have on politics. In its bottom-up company-focused approach, Aberdeen prefers names linked to consumer growth, such as Lojas Renner and Ultrapar in Brazil, and America Movil, Femsa and Banorte in Mexico. He does not like assets dependent on the glut of government spending expected in countries like Brazil. “The IPO bubble of 2007 was extremely healthy for Brazil. This time around with the new deals, hopefully people will be a bit more sensible,” says Kaloo. Aberdeen tends to avoid IPOs, and generally looks to buy companies with established track records. An important distinction in Brazil, he says, is between companies set up by experienced managers delivering performance, and those that are little more than a business plan. Overall, Kaloo says Brazil is one of the strongest long-term stories in EM. He does not expect this year’s elections to cause much volatility. “If the companies on the ground aren’t worried, then we see little reason to be worried,” says the investor.

Renova, the Brazilian renewable energy specialist, failed to price its IPO Wednesday, the scheduled date for the deal. However, it will continue to see if it can raise the funds in the coming days by working with investors and continuing bookbuilding, say bankers on it. Investor choosiness and difficult market conditions, including a high profile scaling down of OSX’s stock offering, are to blame for the lack of initial success, note executives close to the process. Among the chief company-specific challenges is relatively small size of the float, threatened with further shrinkage as investors push for a lower valuation. It also suffers from having a relatively complex business, which led some investors to ignore the prospectus. Renova was looking sell 24.7m base shares and 3.9m greenshoe units at BRL19.00-BRL25.00. This was pushed down to BRL13.00-BRL17.00 area, according to buysider estimates. If it succeeds at pricing at BRL15.00, the company could have a float of BRL430m. However, investor demand for the stock was apparently below that level and at a point where the company appears uncomfortable selling at, according to people watching the process. If it fails to price in coming days, Renova will likely retreat for the time being and consider returning months or years later. Santander and BofA-Merrill are leading the deal.

Eike Batista’s oil services and ship building unit OSX has raised 62% less than targeted through its IPO, a deal widely expected to be one of the biggest LatAm equity issues of 2010. Investors appeared unanimous in their refusal to buy into the Brazilian company, whose earnings potential is untested. OSX priced 3.06m shares plus 459,000 greenshoe units at BRL800 each to raise a total BRL2.82bn. That is 62% less than the BRL7.38bn it would have raised had it maintained the original offering size of 5.51m base shares plus 827,000 greenshoe units and priced at the originally proposed BRL1,167 midpoint. “The market is difficult and investors didn’t understand the value proposition of the company,” complains a banker leading the deal. “They didn’t want to assign value to the upside,” he adds. LatAm equity investors say they will not pay up front for unrealized value. OSX has not generated positive Ebitda since its inception, according to its prospectus. In an effort to avoid dilution as the deal headed towards a lower price, Batista, eighth richest man in the world according to Forbes, opted to refile late Tuesday. He did so at a lower price point and reduced offering size. Evan after the reduction, OSX is among the largest IPOs Brazil is likely to see this year. It also represents a coup for Batista, who now owns 5 publicly listed companies. Credit Suisse, Itau BBA, Bradesco BBI, BTG Pactual and Morgan Stanley led the trade.

Brazil’s OSX and Renova are likely to raise much less than targeted if they succeed in pricing IPOs today as scheduled, say investors and bankers. OSX, the shipping and offshore drilling concern belonging to Eike Batista, was heard late Tuesday struggling to assemble a book. It had only half the orders necessary for a full-sized deal at pricing within the original range, says a US-based equity investor managing a portfolio of $500m. The targeted valuation involves selling shares at BRL1,000-BRL1,333, but the price discussion now apparently revolves around a valuation that would be equivalent to BRL800 per share. “They are reducing the number of shares to be offered and dropping the price,” says the New York-based investor. “All told, they’ll probably raise half of what they originally wanted,” he adds. If OSX had priced all of its base shares and a 15% greenshoe at the BRL1,167 midpoint, it would have raised BRL7.40bn. “A good part of the value of [OSX] is in the long term,” says a Brazil-based portfolio manager at a leading asset manager. “It’s hard to assign a price today for this future value. We just don’t want to pay up front for it,” he adds. Meanwhile, renewable energy company Renova is heard to have readjusted its price expectations to well below the BRL19.00-BRL25.00 it originally wanted. The US-based investor eyeing the deal says Renova may now be hoping to price at BRL13.00-BRL17.00. If confirmed, the company would start life as a listed entity with a float of around BRL430m, assuming it prices all 24.7m base shares and a 3.9m-share greenshoe. This is well below the BRL630m it might have raised at the original midpoint. One buysider says the deal is a complicated proposition that makes sense only for niche investors seeking a specific type of exposure. Another says the small float makes it a more challenging investment case. OSX is led by Credit Suisse, Itau BBA, Bradesco BBI, BTG Pactual and Morgan Stanley. Renova is through Santander and BofA-Merrill.

Brazilian toll-road operator Ecorodovias says it plans to raise up to BRL2.03bn via an IPO on the local exchange. The company estimates it will get a share price ranging between BRL9.00-BRL12.00. Pricing will take place on March 30 and raise BRL1.13bn at the low end if the greenshoe is not exercised. Trading starts April 1. The company intends to issue 92.0m shares in a primary offering and another 33.2m in a secondary sale. In addition, it says it has the opportunity to add a 43.8m-unit greenshoe within 30 days of the offer. Funds raised will be used to finance the acquisition and development of new transport and ports infrastructure businesses. Itau is leading the sale, with BTG Pactual and Credit Suisse as coordinators.

Brazil’s JBS has filed its intent to hold a primary and secondary share offering on the BMFBovespa. It does not indicate size or timing for a transaction that would add to a Brazilian pipeline expected to yield more than BRL50bn in new issuance this year. BTG Pactual has been hired lead manager, joined by JPMorgan, Santander, Bradesco and Banco do Brasil. The meatpacker plans to use proceeds to finance its expansion plans, working capital and general expenses. An IPO of its JBS USA unit in the US is also expected in the first half of this year, which is expected to raise $1bn-$2bn, according to a report from HSBC. JBS, which IPOed in 2007, has a free float of 41% and a market capitalization of BRL22.75m, according to HSBC. The shop is positive on JBS’ recent merger with Bertin and purchase of Pilgrim’s Pride, though how it handles the integration of each, bankruptcy problems at Pigrim’s and exposure to the US economy will drive valuation in the short to medium term. JBS shares closed down almost 4% Friday at BRL8.77.

Brazilian iron ore miner Ferrous Resources has reignited talks to list itself on the London Stock Exchange, according to executives close to the process. JPMorgan Cazenove, which has run London listings for other LatAm miners including Hochschild and Fresnillo, is advising the company through the process. In 2008, Ferrous pulled its first attempt to list on the UK exchange also through JPMorgan. Ferrous Resources was formed in 2007 with a goal to acquire and develop mainly Brazilian iron ore assets. Its top managers include alumni of Vale, Rio Tinto, CSN.

Norskan Offshore, a Brasil-based shipping operator belonging to Norway’s DOF Group, has filed a prospectus to go public on the Bovespa. The initial document doesn’t specify timing or the deal’s size, but does note that 2009 Ebitda totaled BRL79m. The company provides shipping services and fleet equipment and maintenance to offshore drilling companies in Brazil, including Shell, Petrobras, OGX, Chevron and Statoil, and has 36 ships in operation or in construction. The timing of the move is clearly based on the robust outlook for shipping services. OSX, the shipping and shipyard unit belonging to Eike Batista, expects to price its IPO later this month in a deal that could raise up to BRL8.7bn. Credit Suisse and BTG Pactual will lead the Norskan deal.