16 de septiembre de 2014 / 10:03 / en 3 años

DEALTALK-Blackrock, investment funds wary of revival in Brazil IPOs

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By Guillermo Parra-Bernal and Paula Arend Laier

SAO PAULO, Sept 16 (Reuters) - BlackRock Inc and other investment firms are not so sure that a revival of initial public offerings in Brazil will fly.

Speculation that President Dilma Rousseff could lose an October election to a more market-friendly challenger has boosted Brazilian stocks and reignited interest in an IPO market that has been dormant this year. The Bovespa stock index has rallied as much as 11 percent since Aug. 14.

Three companies, JBS Foods SA, T4U Holding Brasil SA and Ouro Fino Saúde Animal Participações SA, will take advantage of improving market sentiment and try to price their initial offerings next month.

The IPOs are set to happen between the first and second rounds of Brazil’s most unpredictable presidential election in 12 years. Regardless of how polling on the race swings, bankers involved in the deals told Reuters there is no turning back.

Yet pension funds and asset management firms remain wary. Apart from election-related risks, concerns over reduced global liquidity and an economic recession extending into next year could discourage them from snapping up shares of companies with little track record or earnings visibility.

“I don’t see why anyone would get into an IPO now in Brazil, the environment is not a good one,” said William Landers, who oversees $4 billion in Latin American equities for BlackRock, the world’s largest money manager. “Companies have to face the reality of higher risk premiums.”

Fabio Moser, who manages 5.9 billion reais ($2.52 billion) for Fator Administração de Recursos, said companies seeking to debut in the local stock market face a delicate balancing act: how to offer attractive risk and return as economic and political uncertainty escalates.

Bankers say companies could be forced to lower their asking prices as investors gain the upper hand to press for bigger-than-usual discounts. They remain confident that funds will keep a watchful eye on new Brazil issues because the local equity market is more liquid and more diverse than those in other emerging markets.

“Buyers will play hardball and shun IPOs with unrealistic valuations,” Moser said in an interview. “Convincing the market to buy isn’t impossible, but it certainly won’t be easy.”


JBS Foods, a unit of meatpacker JBS SA, aims to fetch 4 billion reais from its IPO. Banks working on the deal want to kick off meetings with investors as soon as possible, a source with direct knowledge of the deal told Reuters.

Cell tower operator T4U and veterinary product maker Ouro Fino operate in sectors promising investors protection in the event of a downturn.

“Taking advantage opportunistically of a rally is a little risky for these companies in a moment that is not the best to buy IPOs,” said Julian Mayo, a co-chief investment officer overseeing $3 billion in emerging market equities for Charlemagne Capital in London.

Still, two bankers involved in the deals said some investors are expressing preliminary interest in all three IPOs.

The bankers, who requested anonymity since the deals are in the works, said they believe the IPO price tags may have to be adjusted if a volatile market begins to hamper the IPOs’ investment cases. Both bankers said they believe the IPOs are in sectors that look immune to the impact of the election.

“My view is that there is always demand for good investment cases at the right price, regardless of the macroeconomic picture or the political moment,” said Marcelo Mesquita, who oversees 550 million reais for Leblon Equities Gestão de Recursos in Rio de Janeiro.

Seen for most of the last decade as a symbol of Brazil’s buoyant capital markets, IPOs have languished in the past three years as prices sank for many names that went public. While most markets have gradually recovered from the global financial crisis of 2008, IPOs remain out of favor.

Stung by a string of deals in recent years that failed to deliver the promised returns, investors have turned especially cautious with Brazilian IPOs. About one-third of the almost 120 IPOs priced in São Paulo since 2005 yielded returns above the benchmark CDI interbank lending rate, with the rest losing half the amount invested, Credit Suisse Group AG said last year.

That is sidelining foreign investors, traditionally the largest buyers of offerings in the country. Foreigners snapped up 70 percent of Brazilian share offerings between 2006 and 2008, but that share fell to a decade-low average of 41 percent last year, according to Thomson Reuters data.

Local investors including Eduardo Roche of Canepa Asset Management are in the same boat. Brazilian IPOs still rely heavily on foreign investors as resident investors alone are not numerous or big enough to subscribe most of an offering.

The last time a Brazilian company listed shares on the São Paulo Stock Exchange was December 2013, when travel agency CVC Brasil Operadora de Turismo SA raised 540 million reais from investors. This year, IPOs in Brazil are likely to have their worst year in at least a decade.

$1 = 2.34 Brazilian reais Editing by Todd Benson and David Gregorio

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