Brazil IPOs Seen Smaller, More Numerous

With domestic growth accounting for about 60% of Brazilian GDP, bankers say several sectors are in play for IPOs. Gustavo Sousa, MD of Banco do Brasil’s ECM operations, identifies protein and healthcare as sectors where IPOs are being discussed. In homebuilding and real estate, Sousa sees more follow-ons than IPOs, but says he knows of a company plotting an IPO. In the auto sector, there is the likelihood of international companies listing locally, following the success of Santander. The Autometal unit of Spanish auto parts manufacturer CIE Automotive announced in May plans to float in Brazil. Oil and gas – where Repsol is considering a local listing of its Brazil assets – should also see IPOs as the supply chain readies for massive Petrobras exploration over the coming decade, says Sousa. Enrique Corredor, head of BTG’s ECM syndicate notes that, in addition to Repsol, consumer products companies Avon and Johnson & Johnson should be considering local Brazil spinoffs via an IPO. As more demand comes from locals, Brazil will begin to reverse the trend of having fewer issues from larger entities. “We’ll see a trend that resembles India and China, with a higher number of deals and smaller deals, that can weather global volatility better,” says Matias Santa Cruz, executive director for Latin America ECM at UBS. The number of IPOs under $100m was only 9% of Brazilian deals this year and last, Santa Cruz says, compared to about 50% of IPOs in China and India. BTG’s Corredor adds that the average Brazil IPO size is $500m in 2010, down from $2.1bn last year. Meanwhile hedge funds are returning. They are important providers of liquidity, accounting for about 45% of allocations from 2010 IPOs, after dropping as low as 30% in 2008, from 50% pre-crisis, says Corredor. Santa Cruz expects LatAm ex-Brazil to pick up, perhaps in 2011, with possibility in Mexico, Colombia and Chile. Souza, Corredor and Santa Cruz spoke last week at a panel organized by the Brazilian-American Chamber