“The market is showing itself to be quite healthy,” says Evandro Pereira, head of LatAm capital markets at UBS Pactual, which had lead roles in all of last month’s major IPOs. “We saw three deals getting priced within their stated [pricing] ranges in roughly six business days,” he adds. Pereira notes that while not all last month’s transactions were blowouts, they were a far cry from the disastrous offerings of the first quarter.

A pickup in the new issue market will depend on global market conditions, say bankers, who add that there are plenty of quality assets seeking equity financing that would make for strong candidates. “The publicly available pipeline is somewhat polluted right now,” says Pereira, referring in particular to Brazil, where the CVM has a running list of deals under consideration. “There are lots of things in there that won’t make it and other deals that haven’t filed yet.”

The banker says he expects at least 15 IPOs in the remainder of the year, with a handful of follow-ons. A senior ECM banker at another shop says that if markets improve from June, the number of new issues could rise well above that.

Through June 23, eight LatAm companies had raised $6.83 billion, two thirds of which came from Brazilian oil and gas company OGX, according to Dealogic. In the corresponding period of 2007 – a record for Brazil equity – 32 companies had gone public, raising $8.67 billion. The figures, which only include IPOs, highlight a 21% drop in total volume but a 75% drop in the number of transactions.

However, overall ECM volume through June 24 is only 8.5% lower than the year-ago period thanks to a series of large follow-ons from the likes of Gerdau and GP Investments in the first half.

OGX Shatters Records

The record for the largest LatAm IPO, held by the Bovespa for seven months, was smashed June 11 by OGX, the Brazilian oil and gas startup. The $4.1 billion deal is the largest initial offering from the region to date, and the company, which was assembled in about a year is also among the youngest to ever go public in LatAm. The offering left the Bovespa’s $3.7 billion and the BM&F’s $3.4 billion IPOs in the dust, and with much less pomp and circumstance.

OGX braved unwelcoming market conditions to upsize the offer from an initially rumored $2.5 billion. “Investors are interested in deals that are from the right sector and that come at the right price,” Francisco Gros, chairman of OGX, tells LatinFinance. He adds the book for the IPO, which priced at the top of the range at 1,131 reais, was several times oversubscribed. That, he believes, also contributed to the 14% rise in the first seven trading sessions through June 23, when it closed at 1,290 reais a share.

The company’s lead bankers on the deal UBS Pactual, Credit Suisse and Itaú BBA, were also big winners, bagging an estimated $100 million in fees, according to Dealogic. OGX was founded by Brazilian entrepreneur Eike Batista.

Mixed Results in Mexico
The Bolsa Mexicana de Valores’ June 12 IPO made less of an impression. The flagship $375 million equity deal for Mexico priced at the midpoint of a 14.00-19.00 pesos range, but traded down roughly 8% in the eight sessions following pricing. Since the Mexican new issue equity market is still largely inactive, a poor aftermarket performance by a hallmark issuer is discouraging. Total proceeds could reach $420 million if a greenshoe is fully exercised.

The deal led by BBVA and UBS may still trade up and give investors a good long-term value play. But for the moment it stands as a grim reminder of the perils local issuers face in that market.

In the week following the BMV and OGX offerings, Genomma, the Mexican laboratory company, succeeded in raising $202 million by pricing a deal at 16.00 pesos, the low end of its targeted 16.00-20.00 pesos range. The issue, led by UBS, Merrill Lynch, Ixe and Santander, was hovering at or just above issue in the ensuing five six sessions. Proceeds could reach roughly $232 million if the 15% greenshoe is exercised, which is not a given.

Bankers on the deal pointed to the fact the deals got done, and within the range, as a triumph as well as a positive indication of where the market may be heading in the second half. LF