Smiles Launches IPO, Enlists PE Help

Gol’s Smiles mileage loyalty program has launched an IPO, aiming to raise more than BRL1bn ($503m), and has hooked private equity firm General Atlantic for a BRL400m commitment. With pricing scheduled for April 25, the Brazilian airline plans a sale of 44m of the unit’s primary shares at BRL20.70-BRL25.80 each, according to a prospectus, meaning a BRL1.03bn sale at the midpoint if a 15% greenshoe is included. A 20% hot issue option is also available. Smiles was due to begin meeting investors Monday, in what has been a tricky period for Gol, including credit ratings downgrades on expectations of harsh operating conditions. To shore up the sale and reassure potential investors, General Atlantic has agreed to buy BRL400m, Gol says. The agreement is contingent on a nine month lock-up, Smiles hitting the minimum of the price range and the base deal portion of the IPO reaching BRL800m, among other conditions. The proceeds from the IPO will go to funding the purchase of the passenger loyalty assets currently held by Gol’s VRG unit. Banco do Brasil, Bradesco, Credit Suisse, Deutsche Bank, Itau, Morgan Stanley and Santander are managing the sale. The business being carved out to become Smiles booked BRL125m ($63m) in Ebitda last year, after getting BRL164m in 2011 and BRL204m in 2010. Credit analysts and investors fret about Gol’s decreasing cash flows while it faces increasing fuel costs, currency depreciation, and rising competition. However, a successful equity raise would be seen as a positive liquidity event, according to credit ratings reports.