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,
"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
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