Brazil IPOs Teeter as Investors Demand Discount

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.