* BB Seguridade deal becomes world's top IPO this year
* Successful pricing to boost confidence in Brazil IPOs
* Brazil companies fetched $6.7 bln in IPOs this month
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, April 25 Brazil's BB Seguridade
Participações SA sealed the world's biggest initial public
offering in seven months at a time when confidence in the South
American giant has ebbed because of concerns about high
inflation and mounting government interference in some sectors
of the economy.
BB Seguridade, the pension, annuity and insurance unit of
state-controlled Banco do Brasil SA, raised 11.48
billion reais ($5.74 billion) in the share offering on Thursday,
the world's largest IPO since Japan Airlines Co Ltd's
$8.5 billion listing last September, according to Thomson
A successful pricing of BB Seguridade, alongside that of
frequent flyer program Smiles SA, brings a much-needed
confidence boost to an IPO market that just a few years ago was
one of the world's hottest. Stung by a string of deals that
failed to deliver promised returns, investors have for the past
two years turned extra cautious on Brazil, casting a dark cloud
over a pipeline of potential IPO transactions this year.
"Markets have been attentive to the potential of Brazilian
IPOs," said David Menlow, president of IPOFinancial.com, a firm
specializing in analyzing IPO trends. "If (the country) gets
things back on track, activity may become favorable."
Companies might be taking advantage of increased liquidity
and demand for higher-yielding assets like emerging market
stocks to raise funds for expansion, Menlow noted. Only three
Brazilian companies held IPOs in 2012, down from 11 each year in
2010 and 2011 and a record 64 in 2007, according to Thomson
This April became the strongest month for IPOs in Brazil
since June 2008, when 15.1 billion reais were raised in two
transactions. So far, sugar and ethanol producer Biosev SA
, Alupar Investimentos SA, Smiles and BB Seguridade
fetched a combined 14.3 billion reais this month.
Earlier on Thursday, Smiles and main shareholder Gol Linhas
Aéreas Inteligentes SA raised 1.13 billion reais.
Smiles sold 52.17 million shares at a price of 21.7 reais each.
The suggested price tag for the stock was between 20.70 reais
and 25.80 reais each.
Bankers in the deal told Reuters that demand for the Smiles
deal topped five times the amount of shares on offer. An order
worth 400 million reais from U.S. buyout firm General Atlantic
LLC helped fuel demand for the Smiles IPO, they added.
A source with direct knowledge of the BB Seguridade deal
told Reuters that demand was more than double the amount of
shares on offer. About 675 million common shares of BB
Seguridade were sold at a price of 17 reais - the suggested
price range was between 15 reais and 18 reais.
Smiles will bear the symbol "SMLE3" on the São Paulo Stock
Exchange, while BB Seguridade will have the symbol "BBSE3." Both
stocks are scheduled to begin trading next Monday.
Brazil's once-hyped IPO market is slowly rebounding yet not
as swiftly as some bankers hoped, as investors remain skittish
over the risk of overpriced deals, flagging economic growth and
the impact of heavy state interference in some areas of the
economy, such as the electricity and banking sectors.
Potential transactions for the coming months include an IPO
of Votorantim Cimentos SA, the nation's largest cement maker,
and Autobrasil Participações SA, a dealership of second-hand
Foreign investors, traditionally the largest buyers of
Brazilian IPOs because of their strong shareholding culture,
were expected to snap up half the shares on offer of BB
Seguridade. Brazilian pension funds were also expected to
participate actively in the deal.
Investors were drawn to the BB Seguridade deal as insurance
grows bigger in the business model of Brazilian banks. Record
low interest rates, stable household income and a strong job
market are boosting demand for retirement packages and health
and auto insurance.
Brazilians spend less than a tenth of the amount Britons or
Americans do on insurance products and, as the middle class
grows, insurers are luring new clients by transforming
traditional, costlier policies into cheaper products.
Banco do Brasil expects to pocket a gross profit exceeding
8.3 billion reais with the sale of its stake in BB Seguridade,
according to a securities filing.
The Smiles IPO allows investors to take advantage of
Brazil's growing middle class. Some of the beneficiaries of that
change in the country's demographics were airlines, which saw
their customer base grow enormously, with many clients joining
The Smiles IPO should bolster the finances of Gol, which for
the past year has struggled with surging costs, rising debt and
an economic slowdown that hampered demand for air travel.
Both transactions are a boon for local investment banks,
which are vying for the largest, most lucrative deals in the
Brazilian equity market with foreign counterparts.
Banco do Brasil's investment banking unit handled the BB
Seguridade deal, with co-managers including Banco Bradesco SA
, Itaú Unibanco Holding SA, JPMorgan Chase
& Co. Other investment banks working on the transaction
include BTG Pactual Group, the largest equity
underwriter in Brazil last year, and São Paulo-based Brasil
Plural Banco Multiplo.
Smiles hired the investment banking unit of Credit Suisse
Group for the deal. Banco do Brasil, Itaú, Morgan
Stanley & Co, Deutsche Bank AG and Banco
Santander SA acted as co-managers.