Latin American equity issuance will hold steady through the end of this year as companies take advantage of an economic recovery from the COVID-19 pandemic to raise funds through initial public offerings (IPOs) and follow-on deals, Persio Dangot, managing director of equity capital markets at Scotiabank, tells LatinFinance.
“There is a huge pipeline in Latin America. We have almost 30 publicly filed companies already looking to do a deal,” Dangot says.
Equity issuance has been rising this year, as a global economic recovery from pandemic lockdowns encourages companies to tap the market.
The world economy is forecast to grow 6% this year and 4.9% in 2022, rebounding from a 3.2% contraction last year, according to the International Monetary Fund. Over the same period, the economy in Latin America and the Caribbean is poised to grow 5.8% and 3.2% after suffering a 7% drop last year.
The recovery has built up a backlog of deals, leading some issuers to bid their time for windows of opportunity when fewer companies going to market.
“It was a tough competition,” Dangot says. “Some companies decided to wait. They didn’t want to be in the market at the same time as many others.”
In Latin America, Brazil has been the biggest source of company listings in both its domestic market and the United States, as Brazil’s well-established asset management industry has been deft at bringing more investors to the IPO market.
“Brazil has been dominating the market with 80 to 85% of the deals” over the last few years, Dangot says.
Between January 1 and August 20 this year, the Brazilian local stock exchange B3 reported 45 listings, up from 28 in all of 2020. According to data from Brazil’s securities commission, 27 companies made offerings totaling a sum of $8.4 billion in the international market in 2020, compared with four Mexican companies who offered a total $700 million. That trend has continued this year. Between June and August this year, three out of the top five IPOs came from Brazil, according to data from Dealogic. Of those, Brazilian fuel retailer Raízen led the pack with a $1.3 billion IPO on August 4.
There are concerns, however. The spread of the Delta variant of the coronavirus, for example, is slowing the global economic recovery at a time when vaccination programs have been sluggish in the region.
“The vaccination came and people were expecting the market to recover. Now we are seeing that it is not recovering as fast as we want it,” says Dangot. “It took a little bit longer to start the vaccination process in Latin America.”
Another hurdle for equity issuance is the potential impact of a new wave of elections in the region, beginning in November in Argentina and Chile and continuing next year in Colombia and Brazil. The elections have raise concerns that increased social spending could worsen the prospects for issuance.
“We see higher interest rates, inflation and high volatility, things that increase the risk perception for investors,” says Dangot.
Worse, a good number of IPOs not only in Latin America, but in the globe, have been underperforming this year, including IPOs priced since the beginning of 2021due to market performance worsening in the last months which has impacted them, according to Dangot.
“Right now more than 50 percent of the deals are performing below the issue price,” says Dangot. “Investors are not making money, so this also brings attention to the market.”