Heading into the much anticipated second half of the year, bankers hope for a revival but there are few indications of a turnaround. The pipeline is dramatically diminished from earlier in the year as companies lose patience or seek alternative modes of financing. The buyside is also skittish.

“Investors are going to be very selective, though there is still plenty of room for good companies bringing decent-sized deals,” says Mario Campos, head of LatAm equity sales and trading at UBS Pactual in São Paulo. Meanwhile, Campos expects ECM new issuance to drop relative to the first half, following a series of hefty IPOs and follow-ons from the likes of Gerdau, OGX and Vale.

Through mid-August 2007, there had been 92 offerings worth $28.9 billion in LatAm, according to Dealogic. In the same period of this year, the total is similar – $26.1 billion – but via only 35 deals, including Vale’s $12.2 billion follow-on.

Investor pickiness, a global theme, is driven by two factors, says Campos: macro concerns and IPO performance. A generalized global slump and wilting commodity prices leave investors with a more cautious LatAm outlook, says Campos. This is especially the case in Brazil, where a number of agricultural companies are considering raising equity.

IPO Barkers, Cash Flight
Poor IPO performance weighs. Of the LatAm IPOs priced since January 2007, 75% are trading below offer price, according to Dealogic. The losses are fairly uniform, though there are a handful of real estate companies in the red, including Ez Tec, CR2 and Camargo Correa, all of which were off more than 50% as of mid-August.

Midsize banks like Patagonia, Pine, Parana, Indusval and Sofisa are meanwhile all over 30% underwater. And even sizable, liquid offerings like BM&F, Bovespa, Fresnillo, OGX and MPX – all of which were $1.0-$4.0 billion in size – are more than 30% below issue price.

The ongoing departure of cash from funds dedicated to the region is another bearish factor. “There have been some outflows from EM funds, and that’s a reflection of investor concerns surrounding global growth and commodity price outlook,” says Sebastien Chatel, co-head of ECM at Merrill Lynch based in São Paulo. In the week ended August 13, LatAm funds saw departures of $504.9 million, which brought year to date outflows to $1.81 billion, according to EPFR Global.

San Antonio Readies IPO
Among IPO hopefuls is San Antonio Internacional, the company purchased by private equity shops GP Investments, Amber Capital and Temasek Holdings from Pride. The buyout of the company’s LatAm business, with assets in Argentina, Colombia, Venezuela, Ecuador, Mexico and Brazil, cost the sponsors $1.0 billion last year, $600 million of which was paid for using debt.

Following an active several months during which San Antonio reshaped its debt structure, the company filed for an IPO which bankers say could be worth well over $500 million. Credit Suisse, Itaú BBA and Deutsche Bank are leading, with the latter two also lending the company $100 million in an 18-month pre-IPO loan.

“It’s bad timing for an oil and gas IPO in Brazil,” says a hedge fund analyst considering participating. With oil prices coming off their highs and Brazilian IPOs performing poorly, conditions for the offering, slated for September, could be hostile indeed.

Others are more sanguine. “In general, the price of oil doesn’t affect the outlook for these maintenance companies because they are servicing fixed assets that are part of a long-term investment strategy by the [E&P] companies,” says an equity analyst based in São Paulo, who asked not to be identified.

Elsewhere, despite wretched market conditions for LatAm equity issuers, especially Argentine ones, YPF, the country’s biggest oil and gas company, is hoping to bring its up to $4 billion IPO in the last four months of 2008, say people familiar with the process. The deal would set a new benchmark for Argentina and test investor appetite for what is seen as a strong asset in a volatile, unpopular jurisdiction.

The company, which last year was valued at some $15 billion when its parent Repsol sold it to the Eskenazi group, a private consortium with ties to the government, plans to list 20%-24% of its equity. The company has improved its operations, say officials close to the issuer, and the $15 billion value is likely to serve as a baseline value than an average one, they say. As such, the IPO could be in the $3bn-$4 billion range.

YPF is also heard to not be desperate to price the deal in 2008, meaning if market conditions continue to be unfavorable, it could carry the offering over into 2009. Credit Suisse and UBS are heading the deal, with Goldman and Itaú BBA also carrying senior lead roles.

Elsewhere in Brazil, Empresa de Investimento em Energias Renováveis (ERSA) is pressing ahead with plans to IPO via the listing of a BDR on the Bovespa. Credit Suisse and BBI are leading the offering of units, to include preferred and common shares.  The renewable energy generation company, may be joined by other companies in the utilities and agriculture sector, say bankers. LF