Brazilians Build Equity Pipeline Despite Market Woes

Brazil’s new equity issuance pipeline is growing even as its market deals with global volatility and disappointing economic indicators. The Bovespa rebounded a bit Monday after suffering in the previous week, and for some, sagging prices might represent attractive entry points. Despite the volatility, domestic structural changes still have investment banks optimistic about the possibilities. “Asset management in Brazil is maturing, and there is more of a risk profile for smaller-cap issuers. This is a positive. We lack in Brazil a lot of industries, such as services, not represented on the exchange. If there is a market for them it will be healthy,” Christian Egan, global head of equities at Itau, tells LatinFinance. As interest rates drop, fund managers must work harder to find returns, and he notes that local demand has topped 50% of the books on some deals. There is a universe of small companies in Brazil that previously lacked appetite from investors, he explains. Trends toward specialized and small cap funds abroad should ultimately mean greater foreign participation as well, Egan says. For the moment, however, Egan says investors will need to see productivity numbers improve, noting his bank expects growth to pick up in the second half. International investors, as always, should still be needed to drive large deals. “Even BTG Pactual is down 20% [from its IPO price in April]. That doesn’t foster a lot of confidence, so [new issuance] will be challenging,” says a New York-based portfolio manager reviewing some of the recently-announced transactions. Recent growth numbers weren’t great and there is concern again about bank lending, he adds, while on the positive side inflation appears to be under control and retail sales were better than expected. CPFL Renovaveis, Suzano and Brazil Pharma have recently filed deals that should come in towards the larger end of the scale. LDC Bioenergia, Vix Logistica, Manabi and Celulose Irani have also joined the pipeline in the