ECM bankers are looking at new structures for growth after a tough year for equities, highlighted most recently by Digicel’s pulled listing last week. 

Industry bankers are focusing now on shorter windows for execution and nimbler structures to get such transactions done amid heavy volatility and portfolio outflows, sources have told LatinFinance. 

“If you look around the region, banks are trying to find ways around the volatility,” said one equity markets specialist. “In Mexico, they’re looking at the Fibra E structure and then in Brazil you have the 476 instruction for smaller-sized IPOs that caps deals at 75 investors.”

Valid Soluções became the first Brazilian issuer to use the country’s new restricted equity placement format known as Rule 476, when it raised BRL396m ($96.6m), in a follow-on sale that came at BRL44.10 per share. The new format allows Brazilian companies to tap markets more quickly and with less documentation than through traditional public offerings.

Such alternative structures could serve as a “band-aid” to counteract market volatility, he said.  

Market reaction

Digicel’s offering, which aimed to raise almost $2bn, would have been the second-largest IPO in the US market, but observers said the deal was bold from the outset. One ECM banker away from the deal was “shocked” when the Caribbean telco company launched. 

“When the announcement came through [that Digicel had launched], we were in disbelief and thought, ‘what are these guys thinking’?” He said. “We thought, surely they [Digicel] had pre-sold a large majority of the shares to anchor accounts, so as to counter the volatility”.

While bankers away from the deal thought Digicel had locked in commitments from anchor investors, the IPO proved the opposite, lacking support from strategic buyers to warrant completions, said one source familiar with the deal.

Market volatility has investors moving capital out of emerging markets, while flows into Latin America remain negative, the initial ECM source said. 

A second source said the Digicel deal, which was canceled on the final day of marketing, was a “victim of overly-ambitious targets”, after bankers on the deal expected the order book to oversubscribe seven times.

“It was pushed right to the brink and was always going to be a tall order to get investors to buy shares between the $13 to $16 target,” the source said. “I think the deal was marketed against the positive Digicel story and the reputation of its CEO, but given the market conditions, the deal was facing an uphill battle.”

As for Digicel’s IPO, while it was canceled, there is a possibility the deal could resurface in 18 to 24 months, one source that worked on the transaction said. LF