February 10, 2017 / 6:19 PM / a year ago

Brazil's busiest week for IPOs in years marked by mixed fortunes

SAO PAULO, Feb 10 (Reuters) - Brazil’s busiest week for initial public offerings in nearly four years ended on Friday with mixed results for issuers, faced with wariness among foreign investors toward Latin America’s largest equity market amid fallout from political turmoil.

Rent-a-car Movida Participações SA and medical laboratory Instituto Hermes Pardini SA concluded their IPOs despite pressure for lower prices. Movida’s rival Unidas SA, however, halted its IPO plans on Friday, four people directly involved in the deals said.

Aside from overlapping IPOs between the rental car rivals, the pricing of a large 4.1 billion reais ($1.3 billion) follow-on offering by CCR SA, Brazil’s largest toll road operator, might have hampered demand for the offerings, the sources said.

This week was the busiest for domestic equity offerings since April 2013, when three large listings were priced.

Investors stung by a string of deals in recent years that failed to deliver promised returns have become cautious about IPOs in Brazil.

Only about a third of the 138 IPOs priced over the past decade yielded returns above the benchmark interbank lending rate, Thomson Reuters data showed, with the remainder losing part or all of the amount initially invested.

Movida’s shares, which plunged on Wednesday - their first day of trading - have since recovered and appear headed toward notching a 2 percent gain on the week.

Extending the current wave of offerings and providing cheaper funding for companies hinges on President Michel Temer’s ability to push ahead with ambitious reforms to lower the country’s risk perception, bankers said.

“This week showed we are still in a buyers’ market and investors still feel more comfortable taking existing risk than new one,” said one of the people, who asked for anonymity to speak about the transactions.


Stronger equity markets and companies’ need to fund growth or reduce debt are the “fundamental catalysts in place” sustaining IPO activity in Brazil and Latin America this year, according to Pedro Martins, chief Latin America equity strategist for JPMorgan Securities.

However, companies seeking to tap the local equity markets face a balancing act: how to offer acceptable risk and return as Brazil enters a third straight year of economic recession, political risks remain elevated and global trade protectionism gains steam under U.S. President Donald Trump, bankers said.

Such uncertainty is keeping foreign investors - traditionally the largest buyers of Brazilian IPOs - on the sidelines. Foreigners snapped up only 15 percent of the Pardini deal, a fraction of the 67 percent participation ratio they had about a decade ago, the people said.

The mixed results of this week’s IPOs may shed light on how a list of long-awaited listings should come to market. Those companies include airline Azul Linhas Aéreas Brasileiras SA, securities firm XP Investimentos SA and the Brazilian unit of France’s Carrefour SA.

A new wave of IPO requests should resume in late March or early April and stretch for longer should market conditions prove favorable, bankers at Itaú BBA SA and Banco Bradesco BBI SA, the country’s largest equity underwriters, recently told Reuters.

Movida’s IPO on Monday raised a smaller-than-expected 645 million reais, after controlling shareholder JSL SA was forced to lower the deal’s pricetag. A member of JSL’s controlling family subscribed about 15 percent of the deal to ensure its completion, sources told Reuters.

On Thursday, Hermes Pardini clinched about 1 billion reais at a price slightly above the floor of the suggested price range, one of the people said. At the floor of the price range, investors bid the equivalent of three times the amount of shares on offer, the same person said.

In the case of Unidas, shareholders Gávea Investimentos Ltda, Vinci Partners and Kinea Investimentos Ltda shunned a suggestion from bankers to cut the price range to secure demand for the IPO. Banks are working on ways to help the three shareholders divest their combined stake of about 45 percent in Unidas, one of the people said.

$1 = 3.1145 Brazilian reais Editing by Daniel Flynn and G Crosse

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