A resumption of activity in Brazil’s subdued equity market could be around the corner.

This month’s widely expected cut in US interest rates is expected to help bring an end to Brazil’s drought in initial public offerings, according to Hans Lin, co-head of investment banking at Bank of America in São Paulo.

“We are hopefully testing the water with a potential IPO,” he told LatinFinance in an interview. “Hopefully with a Fed cut in September, we will launch it and price some time in October. This is going to be a great test for the market.”

Brazil has been experiencing its most severe IPO drought in nearly two decades, Lin said, with the last transaction on the Brazilian market as far back as 2021.

Share issuance volume in the local market is down 20% so far this year and half of the $5.5 billion sold to date relates to the privatization of the São Paulo water and sanitation company Sabesp, Lin said.

But things could be about to change.

“We already have one that we could potentially be launching. There is a pipeline of deals that we are waiting for the market to get better to be able to come,” Lin said. Markets would favor deals of over $500 million for Brazilian companies with $5 billion to $10 billion market capitalization, he added.

CAUTIOUS TONE

However, there is no consensus on Faria Lima, São Paulo’s financial center, where some bankers don’t expect the IPO market to reopen until next year. While a US rate cut would be a big plus, Brazil’s central bank has been preparing the ground for a potential rate hike as early as this month. Some investors also say that an ongoing tax reform will simplify the system but may eventually have a negative impact on some corporates.

Such factors may prevent the market from really reopening.

“I do not expect to see IPOs in Brazil in September or October but things should get better in 2025,” said Fabio Federici, head of ECM ay Goldman Sachs in Brazil.

“If people become confident that we are moving in the right direction… Local investors should be more compelled to invest,” Federici said.