Equity Issuers Face Investor Pushback

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.