Marcio da Rocha Camargo, Garantia

Marcio da Rocha Camargo made the switch from client to investment
banker when he joined Banco de Investimento Garantia. He works
alongside partner Roger Wright in corporate finance, with
responsibility for both equity and debt. Below he outlines the
learning curve which Brazilian issuers have experienced post 1991.

There has been a huge change in investment banking in Brazil in
the last 10 years. On the equity side, for instance, in 1991 there
was the first purely local book building process in Brazil, so the
concept of book building is very new in Brazil. That’s something
that may seem very strange to someone that’s used to this concept
internationally. Before, we used to price deals through a fixed
price system, where you first set the price, then you go to your
clients trying to sell the equity at a certain price. From the book
building perspective, it’s nonsense trying to do that. The concept
of price stabilization didn’t exist, so the whole process was
something very new. It’s still difficult to explain to companies
how a roadshow works, how the price stabilization works, even still
sometimes how book building works. So it’s a huge change, even in
the last five years.

Since the first global offering by Aracruz, we’ve had 21 or 22
global offerings from Brazil, which is still very small. The
difference between Brazil and Mexico or Argentina or other
countries in Latin America is that we have much more liquidity in
the local market, and maybe this is why we have had more local
issues than Argentina and Mexico and why they have had more
international issues-they always have to look for liquidity
elsewhere. Of course, we also have to look for liquidity elsewhere,
but we have strong liquidity in the local market. We have the
pension funds with about $50 billion in assets and we have the
mutual funds and insurance companies.

In 1996, total local equity issuance, local issues plus local
tranches of global offerings, was $2.1 billion. That number was
$4.3 billion in 1997, but about 50% of it was block trades coming
from the federal and state governments selling shares in state
companies to raise money. There are still very few corporate
issuers. We’ve seen some small issues, and they haven’t performed
very well, particularly since the October crisis. Our clients are
looking at liquidity. If you’re coming to the market with a small
issue, it’s going to be difficult.

Before the economic stabilization plan, the companies that
survived all the instability were the ones that had lower levels of
debt which allowed them to survive through all of the changes. So
right after the economic stabilization, and particularly when local
interest rates decreased and access to international markets became
much easier, we saw a lot of issuers going to the fixed income
market. Companies first went to debt, and I think in the second
wave we will see companies issuing equity.