October 11, 2019 / 12:34 PM / 10 months ago

Brazilian share offerings surge to decade high as M&A languishes

    By Tatiana Bautzer and Carolina Mandl
    SAO PAULO, Oct 11 (Reuters) - Brazilian companies are
raising funds through share offerings at a decade-high pace,
bolstered by record low interest rates, progress on
macroeconomic reforms and signs of recovery after a long
recession, even as M&A activity slumps.
    Companies from Petroleo Brasileiro SA to Localiza
Rent A Car SA raised $17.1 billion in 34 transactions
during the first nine months of 2019, almost triple the amount
of the year-earlier period. The nine-month total exceeds the
full-year amount for every year since 2010. 
   M&A volume, which dropped by a fifth, fell in part due to
competition with liquid capital markets, which gave companies
alternatives to asset sales, as well as a sluggish economic
    But the rise in share offerings could have a positive effect
on future M&A transactions. 
    "After companies issue debt at a low cost or raise money
offering shares, it is natural that M&A picks up as a
consequence of well-capitalized companies," said Alessandro
Zema, CEO at Morgan Stanley Brazilian unit.
    Bankers expect 50 equity capital-raising transactions
related to Brazilian companies to be completed by year-end. The
total so far included just four initial public offerings -
sporting goods retailer Grupo SBF SA, power company
Neoenergia SA, medical educator Afya Ltd and
jewelry retailer Vivara Participacoes SA - but that
could change, they said.
    "Follow-on offerings will dominate 2019, but I already see
companies overcoming the IPO inertia and planning to list," said
Fabio Nazari, global head of equity capital markets at Banco BTG
Pactual SA, which advised on 21 deals this year.
    Even sectors such as homebuilders, retailers and banks which
had not sold shares in recent years were back to the pipeline
and planning IPOs, said Hans Lin, head of investment banking in
Brazil at Bank of America.
    As for mergers and acquisitions, the bulk of the $31 billion
deal flow was related to infrastructure and oil and gas, led by
Petrobras divestitures. An auction of oil areas expected for
early next month will create further momentum, said Eduardo
Miras, head of investment banking at Citigroup. 
    Petrobras was instrumental in both the largest capital
markets share deal of the year and the biggest M&A transaction,
raising $2.55 billion in the privatization of its fuel
distribution arm Petrobras Distribuidora SA and $8.7
billion through the sale of gas pipeline company TAG to France's
Engie SA.
    "Sales of Brazilian government assets will continue to play
a key role in deals, either in share offerings or M&A," said
Roderick Greenlees, global head of investment banking at Itau
BBA. Finance Minister Paulo Guedes has been pushing for
privatizations and asset sales which have raised $23.5 billion
so far this year, according to ministry numbers.
    As the Brazilian benchmark interest rate Selic reached its
lowest level on record, 5.5%, local investors are migrating from
sovereign local bonds to riskier investments. Net inflows to
equity and hedge funds this year totalled $21.78 billion through
August, exceeding the total for all of 2018.
    Bankers such as Ricardo Lacerda, partner at BR Parners, also
expect a pick-up in deals involving tech companies through next
year, as Japanese investor Softbank Group Corp deploys
capital from its $5 billion Latin American fund, launched in
    Below are the league tables for M&A and Equity Capital
Markets transactions
    Equity Capital Markets*
    Itau, Bank of America, BTG leading in value and number of
 Advisor           Deal value  Number of
                   ($          deals
 Itau Unibanco     2,503       18
 Bank of America   1,926       14
 Banco BTG         1,405       21
 Citi              1,347       7
 Morgan Stanley    1,270       12
 Santander Corp    1,196       12
 JPMorgan          1,190       8
 Banco Bradesco    1,098       13
 UBS               915         5
 Banco do Brasil   876         9
 Total             17,058      34
 *Global Equity and equity-related- Brazil
    Mergers and acquisitions - Brazilian targets (Jan/Sept 2019)
    BR Partners, Citi, BTG leading in value and number of deals
 Advisor     Deal value  Number of
             ($          deals
 BR          11,875      9
 Citi        11,082      6
 Morgan      9,685       4
 Santander   9,334       6
 Evercore    8,682       1
 Bank of     6,112       8
 Rotschild   4,182       10
 & Co                    
 Itau        3,992       23
 BTG         3,869       29
 Goldman     2,235       4
 Total       31,072      423
 *Deals announced with Brazilian target. Ranking includes 
advisory and fairness opinions.
    Source: Refinitiv

($1 = 4.0816 reais)

 (Reporting by Tatiana Bautzer; Editing by Christian Plumb and
Nick Macfie)
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