No Glut of Brazil Equity, Says Citi

IPO activity is churning over in Brazil, but Citi for one is not worried about indigestion. “There is little evidence that new issuance activity in the Brazilian equity market has created too much supply. On average, investors in new issues have seen gains of 40% over the lives of the new issues, compared to a gain in the Bovespa of “only” 25% over the same period,” says Citi in a report issued Tuesday. It adds that besides July issues, just two IPOs of the past year are below issue price. In the past 12 months, Brazilian companies have raised $18.6bn in 54 deals and Citi says the pace is accelerating. Flow is still dominated by real estate and construction, accounting for 21 of the 54 deals in the past year, raising $6.3bn. “IPO performance in the Real Estate/Construction sector has improved markedly. On average, these new issues have risen 47% in the past year, a 21% outperformance of the Bovespa,” says Citi. The best performers by sector have been Mining and Telecoms, with only one issue each. The only sector where IPOs have underperformed is renewable energy. The note was presumably written before the Bovespa took a beating Tuesday, closing down 3.86% at 55,794.