By Guillermo Parra-Bernal
CAMPOS DO JORDÃO, Brazil, Aug 30 Many initial public offerings in Brazil have led to investor losses over the past eight years, a senior Credit Suisse Group fund manager said on Friday, with the worst results coming from oil and gas - a sector that for years was seen as the nation's most promising.
Only 37 of the 117 IPOs since the start of 2005 have yielded returns above the benchmark CDI interbank lending rate, with remainder losing as much as half of the amount initially invested, according to a presentation by Luiz Stuhlberger, who as chief investment officer oversees 43 billion reais ($18 billion) in assets for Credit Suisse Hedging Griffo.
Overall, Brazilian offerings have yielded a negative 15.2 percent to investors since 2005, with the worst numbers coming from oil IPOs - which posted a negative 51 percent, Stuhlberger said. IPOs in telecommunications firms, toll operators and commercial property developers were the best options for investors, returning 32 percent, 54 percent and 1.8 percent, respectively.
"Most of these IPOs didn't even compensate the cost of equity," he said, adding that "the more the company depended on future results, the worse the perfomance of its stock."
Stuhlberger's data explains why Brazil's once-hyped IPO market has struggled over the past couple of years, given the risk of overpriced deals, flagging economic growth and the impact of heavy state interference in some sectors of the economy.
He said that investors, for instance, could have done better by investing their money in good-quality companies, which he defines as those whose share price trade between two and three times their book value. Some of those companies are beverage maker Cia de Bebidas das Americas SA, also the country's largest private-sector firm by market value and shoemaker Arezzo SA.
"Good quality companies tend to be a good deal for investors - you might pay a little premium here and there to have them, but the return is there," he noted.
Stung by a string of deals that failed to deliver the promised returns, investors are being extra cautious in Brazil, casting a dark cloud over a pipeline of potential deals. Companies looking to go public face a delicate balancing act - how to offer adequate risk and return to investors as growth in Latin America's largest economy loses momentum.
In the case of oil firms that listed shares over the past eight years, one of the worst cases was OGX Petróleo e Gas Participações SA - whose shares have shed more than 90 percent of their value since going public in June 2008. According to Stuhlberger, by excluding OGX from the sample, overall returns would have been around minus 12 percent.
Currently OGX, which is controlled by tycoon Eike Batista, is struggling with high debt, dwindling cash holdings and delays in certain projects. The company has missed output targets repeatedly over the past months, leading to significant declines in its stocks and bonds.
Part of the poor performance of Brazil's benchmark stock index, the Bovespa, could partially be blamed on OGX declines, Stuhlberger noted. OGX is the fourth-largest stock in the index by weight. The Bovespa is down 18 percent this year.
OGX shed 40 percent on Friday to 0.30 reais, a record low. Investors said part of the drop was on concern that the company would be excluded from the Bovespa.
On Thursday, BM&FBovespa SA Chief Executive Officer Edemir Pinto said the only events that could lead to OGX being taken off the index would be if it were to request bankruptcy protection or go out of business. BM&FBovespa operates the Bovespa index.