November 14, 2017 / 12:58 PM / 2 years ago

REFILE-Brazil election concerns prompt year-end IPO rush

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By Bruno Federowski and Tatiana Bautzer

SAO PAULO, Nov 14 (Reuters) - Several Brazilian companies are racing to go public before the end of the year, amid concerns a wide-open 2018 election may cool demand for new stock issues, bankers and fund managers said.

Companies, including Neoenergia SA, Brazil’s largest utility in terms of clients, and mobile and internet provider Algar Telecom SA, are expected to price their offerings in the third week of December, according to two people familiar with the deals.

Burger King franchise operator BK Brasil SA and state-owned oil company Petróleo Brasileiro SA’s fuel distribution unit BR Distribuidora SA are also expected to price their IPOs in the same week, the two sources said.

Regulatory deadlines and a lull in activity during year-end holidays have funneled those deals into what may be Brazil’s highest-grossing week for IPOs in four years, potentially raising more than $2 billion.

A timetable for drugmaker Blau Farmacêutica SA’s proposed IPO, previously reported by Reuters, remains unclear.

Listings on the São Paulo Stock Exchange, run by B3 SA Brasil Bolsa Balcão, have raised $3.4 billion in 2017, more than the three previous years combined.

The revival comes as Brazil’s benchmark stock index has hit record highs due to global demand for emerging market assets and trust in President Michel Temer’s ability to rein in surging government debt.

The spurt of IPOs mirrors a wave of equity listings in other recovering economies in the region. More than 25 Latin American companies may go public within the next year, banking, exchange and market sources told Reuters last month.


Brazilian companies are rushing ahead with their IPOs, with an eye on what could be a wild ride in financial markets before October’s presidential election.

“New listings are a risky endeavor already, given that there’s very little material to base your research on,” said a partner at one of Brazil’s 20 biggest funds by assets, who asked to speak anonymously.

“Imagine how much harder that becomes if you don’t know who will be running the country in a year’s time.”

Companies looking to go public must disclose earnings from recent years, but a lack of analyst research or pricing history often makes investors edgy.

Ten bankers and executives at large buyout and asset management firms told Reuters that investors are wary about betting on IPOs once the 2018 campaign season begins.

Brazilian markets have been bullish this year but a steep yield curve suggests some investors may be concerned by the vote.

Forecasts vary on when to expect the ‘election effect’.

Nomura Securities economists found evidence of Latin American currency market impacts five months before recent elections, which would point to May.

ING economist Gustavo Rangel said in a report that political risks are likely to be priced into Brazilian assets by March.

In 2002, investor concerns over a presidential run by leftist Luiz Inácio Lula da Silva triggered a historic selloff. Just one company, toll-road operator CCR SA, went public that year.


“We may see some more activity in the first quarter of next year but the second will depend more on the polls,” a senior investment banker said, adding that the emergence of a market-friendly front-runner could clear the way for IPOs.

For now, analysts warn that a populist candidate emerging from a fragmented field could reverse Temer’s austerity agenda and derail a recovery, which has only begun to lift companies’ fortunes.

Lula and right-wing lawmaker Jair Bolsonaro, who admits to having little grasp of economic policy, are leading opinion polls, although surveys at this stage are rarely predictive.

Despite this year’s revival of IPO activity, enthusiasm for new listings has been uneven. Foreigners bought only around 40 percent of shares sold in IPOs in Brazil this year, compared to an average two-thirds participation in offerings a decade ago.

Several companies have accepted lower valuations to salvage listings rather than taking their chances in 2018.

Weak investor demand forced food producer Camil Alimentos SA in September to cut the suggested price range for its offering, which still priced at the bottom of the new band. The largest IPO of 2017, a $1.4 billion listing by Grupo Carrefour Brasil SA, priced at the bottom of its suggested range.

($1 = 3.28 reais)

Reporting by Bruno Federowski and Tatiana Bautzer; Editing by Bernadette Baum

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