Category: Equity

This year’s equity revival is a boon for investment banks, some of which are making significant fees from ECM. Thanks to a deal for itself, Santander is the leader for LatAm equity fees year to date, with $62.74m, or 13.78% market share, Dealogic data shows. By revenue, JPMorgan is second, with $61.69m or 13.55%, while owing mostly to VisaNet, Bradesco comes third with $61.32m, or 13.47%. Of the $455.3m ECM wallet from LatAm/Caribbean year-to-date, $359.9m comes from Brazil. Despite a rotten outlook in January, this year is actually better for equity volume, with $26.3bn, up from $25.5bn in the same period 2008, according to Dealogic. The main risers by volume year-on-year are Santander and BTG, while Itau suffers the biggest drop. Equity makes up a hefty chunk of the core investment bank fee pool, which is led by JPMorgan, with $139.3m or 13.4% market share. Credit Suisse is second with $98.9m (9.5%) – boosted by a strong showing in M&A – while Bradesco comes third with $94.2m (9.0%). Surprisingly, the core investment bank (debt, equity, M&A) fee pool has contracted by just 8% this year, to $1.04bn, Dealogic data shows. Credit Suisse is the dominant M&A player by fees, with $51.1m, or 16.4% share of a pool that has shrunk by 43% this year. For debt, where the fee pool has almost doubled, to $285.4m, JPMorgan is leading with $42.8m, or 15% share. The other big year-on-year DCM improver is BofA-Merrill, which is now ranked seventh in the region for volume. Those doing poorly in debt league tables this year versus last include Credit Suisse and Itau, Dealogic data shows.

Direcional Engenharia has refiled IPO documents after months of radio silence that led many to believe the company had given up on a deal. If priced, Direcional’s IPO will be the smallest offering of the past 2 years in Brazil. The company has set a BRL10.00-BRL11.00 range for the sale of 20.7m shares plus a 4.1m share hot issue and 3.1m unit greenshoe. All told, the deal could raise BRL293m if done at the midpoint. That hardly fits the profile of large and liquid issues that have dominated the equity pipeline in the past 2 years. Even Tivit’s IPO, which was priced well below the initial range in September, raised BRL570m in a challenged debut. Direcional is scheduled to price November 17 via Santander and Itau BBA. Morgan Stanley, which until the previous filing was joint lead on the deal, is no longer involved in the trade, according to the most recent prospectus.

After failing to IPO its AEI unit, Ashmore and co-investors in the Houston-based holdco are heard to be swiftly moving to a plan B liquidity event that involves selling off key assets. Executives familiar with the situation say talks to sell Elektro – Brazil’s eighth largest power distributor – are in full swing, with substantial interest from a number of potential bidders. Some 80% of AEI’s assets are in LatAm, the single largest by revenue being Elektro, whose market cap stood at BRL3.6bn mid-October, when trading was halted due to IPO plans. Prior to launch of AEI’s aborted equity offer, CPFL was reported in talks with Elektro about a deal, according to press reports at the time. But several others are now also heard interested in the distributor, which in 2008 posted net revenue of $1.4bn, according to AEI’s IPO prospectus. In H1 2009, total net revenue at Elektro clocked in at $566m. That accounts for 15% of AEI’s revenue in the same period. For full year 2008, Elektro’s Ebitda corresponded to 38% of AEI’s consolidated Ebitda of $1.34bn. Elektro’s debt as of June 30 included BRL543m in 2011 debentures and BRL451m in notes with maturities ranging from 2009-2011, according to the IPO prospectus. AEI is heard to have hired Itau BBA to advise on a sale of Elektro, according to executives away from the process. Stakeholders in the energy generation and distribution holding company include Goldman Sachs, GIC, Eton Park and BlackRock. Officials at Elektro and Itau BBA were not immediately available for comment.

Ashmore Energy International (AEI) has pulled its IPO on the NYSE, blaming market conditions. The Houston-headquartered holding company, most of whose assets are in LatAm, was most recently scheduled to price its offer on October 28. AEI and its underwriters Goldman Sachs and Credit Suisse appear to have scrambled in vain to try and make the deal more appealing to investors. On Thursday, it refiled a prospectus with new deal terms, including scrapping all secondary share sales, thereby cutting the volume to $233m from an estimated $900m when the process started. The last ditch effort at an IPO involved the sale of 20m primary shares at $12.00-$13.00. In the previous week, it had indicated plans to sell 50m shares, 33m from existing investors including Goldman, GIC, Eton Park and BlackRock. Proceeds from the primary shares were earmarked for repayment of debt, of which AEI has $238m denominated in revolving credit facilities, according to the prospectus. In addition to Goldman and Credit Suisse, Citi and JPMorgan were joint books on the deal. AEI has assets in Brazil (36%), Colombia (35%), Peru (4%) and Chile (3%).

Despite a flurry of new issue activity in the Brazilian equity market, there is a relatively low level of goodwill from investors amid continued weakness in the Bovespa, which dropped another 4.8% Wednesday. Disgruntled buysiders and ECM bankers point to the poor performance of recent transactions including Cetip, Tivit and Cyrela. “The taste in investors’ mouths is not good right now,” says a head portfolio manager at a LatAm-focused fund. “It’s hard to say exactly what’s going wrong in a [down] day like today, but there’s been bad execution and some greed in some of these offerings,” he adds. “This is the kind of thing that can kill a market,” complains a senior investment banker, referring to Cetip’s IPO which priced at the BRL13.00 bottom of the range Monday and traded off 9.54% Wednesday to close at BRL11.76. Bankers on the deal and investors agree it was priced too richly, and that the company and its bankers may have pushed the limits on valuation. Cyrela’s decision to raise an additional 10% in a hot issue in its Tuesday follow-on was misguided, says a US-based equity portfolio manager, who notes that it did not trade above the Tuesday follow-on price. Santander’s BRL12.3bn IPO, which priced at BRL23.50 October 6, remains underwater at BRL21.51 Wednesday. Generalized negative performance can be partly attributed to last week’s unwelcome IOF tax, as well as declines in global equity indices. This bodes ill for IPO hopefuls Fleury, IMC and Direcional, all of which are not well known to non-Brazilians. “I’m going to be much more critical in the way I look at new offerings,” says a Brazil-based equity portfolio manager. “Things are being priced too expensive,” he adds.

International Meal Company (IMC), the LatAm restaurant chain holding company held by private equity firm Advent International, has filed for an IPO. IMC owns 3 main assets in Brazil, including Viena and Frango Assado chains; as well as holdings in Mexico, such as La Mansion, Champs Elysees; and in the Caribbean, namely Puerto Rico and the Dominican Republic, where it owns airport and catering companies. The Brazil assets were acquired between 2007 and 2008. Credit Suisse, Itau BBA and Santander are leading the deal. No details on timing and pricing have been divulged.

Grupo Fleury, the Brazilian medical lab and diagnostics company, hopes to bring an IPO this year. The company filed a preliminary prospectus with the CVM late Monday, indicating Bradesco BBI is leading the deal, with Morgan Stanley and JPMorgan as joint leads. The deal’s timeline and pricing have yet to be made available in the prospectus. At first blush, it appears the company is targeting a small offering. Net income for 2008 stood at only BRL38m in the first 3 quarters of 2008, but the company made BRL64m in corresponding period of 2009. As far as earnings are concerned, the company says Ebitda between January and September 30 stood at BRL137m, and negative BRL137m on an adjusted basis.

Direcional Engenharia is still planning to bring an IPO to the market, despite speculation that the deal will be pulled. “We are indeed continuing with the process and we plan on refilling [the prospectus] to the CVM with updated [September 30] financials,” says an executive close to the issuer. The homebuilder was strongly expected to desist from its attempt following a lengthy delay in updating its prospectus, first filed in August. As of Tuesday, the company had yet to update its filing with the customary financial details, deal timeline and expected pricing range. The delay is being attributed to issues regarding timing of the offering and other undisclosed reasons, says the executive. Investors and bankers off the deal have been unanimous in speculating the company had likely received a cool response from investors and ended up abandoning the sale. Since 2005, some 24 Brazilian homebuilders have done IPOs, though several have since been acquired by competitors. “Does the Brazilian market really need another homebuilder?” asks a US-based equity investor. In addition, Direcional’s intended market cap, which has not been made public, is expected to be either in the middle or closer to the lower end of the scale, which could make its bid more challenging as investors lean towards liquidity. In the first half of 2009, adjusted Ebitda stood at BRL40m, according to the initial prospectus. Net income rose 62% in the year between June 2008 and June 2009. Direcional is based in Minas Gerais state, and operates in the southeast and northern regions of Brazil. In 2008, Direcional sold a 25% stake to Tarpon for BRL250m. Santander is leading the equity sale, with Itau and Morgan Stanley as co-leads.