SAO PAULO Brazilian drugstore chain Emprendimentos Pague Menos put off plans to sell shares for the first time, three sources with direct knowledge of the situation said, in the latest sign that demand for new equity in Latin America's largest economy is faltering.
Deusmar Queirós, the retailer's controlling shareholder, gave up on an initial public offering after market conditions soured in the wake of a local economic slowdown and the impact of the euro zone debt crisis, the sources told Reuters on Wednesday. Pague Menos declined to confirm the information.
"Our capital markets have been losing their luster -- that's the real reason behind the decision," said one of the sources, who declined to be identified because the decision has not been made public yet.
The failure of the Pague Menos offering signals that investors, who last year steered clear of IPO deals as Europe's debt crisis worsened, will keep shunning Brazilian companies with great ambitions but an insufficient track record, poor earnings visibility or that could be vulnerable to a downturn.
A fourth source with direct knowledge of the deal said Pague Menos, Brazil's third-biggest drugstore by revenue, wanted to raise about $500 million from the IPO. The deal was expected to be launched by the end of June.
Initial public offerings by tourism companies Brasil Travel Turismo and CVC, as well as the local unit of Spain's Isolux Corsán and oil drilling company Seabras floundered, also reflecting concern that new deals could come overpriced.
Queirós and the company hired Itaú BBA, the investment banking unit of Itaú Unibanco Holding (ITUB4.SA), to manage the transaction. The investment banking units of Banco do Brasil (BBAS3.SA) and Credit Suisse Group (CSGN.VX) were hired as co-managers for the deal.
The first source said that no strategic investor has yet approached Pague Menos for the purchase of a stake. The same source said a decision to continue with the IPO will gauge the benefits of "taking advantage of the next window of opportunity" and the cost of bankers and lawyers in the process.
Founded in 1981 by Queirós, Pague Menos has about 540 stores across Brazil's 27 states and federal district.
(Reporting by Vivian Pereira; Additional reporting and writing by Guillermo Parra-Bernal in São Paulo; Editing by Kenneth Barry)