December 4, 2012 / 8:41 PM / 5 years ago

Credit Suisse bankers see iconic IPOs in Mexico next year

* See Brazil, Mexico equity valuation gap for up to two years

* Brazil seen slowly recovering confidence

By Guillermo Parra-Bernal

SAO PAULO, Dec 4 (Reuters) - A couple of “emblematic” initial public offerings in Mexico will be launched next year, paving the way for more capital markets deals as Latin America’s No. 2 economy steals investor attention from regional powerhouse Brazil, bankers at Credit Suisse Group said on Tuesday.

IPO activity in Mexico is likely to take place in sectors where such transactions are not too common, Marcelo Kayath, the bank’s head of fixed-income and equities for Latin America, said on Tuesday. Kayath declined to elaborate on the transactions, only saying that he expects both deals to be made public early in 2013.

“Mexico will be in the spotlight,” Kayath told reporters at a luncheon at the bank’s headquarters in São Paulo. “The pipeline is rather promising, but those two deals you will see are emblematic - they will give a lot of depth to the market in Mexico.”

Activity will gather steam in the commercial and upscale residential real estate sectors, as well as consumer goods and energy - an industry in which investors expect newly sworn-in President Enrique Peña Nieto to ease restrictions on the participation of private investors, Kayath noted.

Kayath’s remarks highlight the growing importance of Mexico as a magnet for foreign investment after years of lackluster performance. In recent months, capital inflows toward Mexico’s bond and stock markets have topped those into Brazil, partly on optimism that Peña Nieto will push forward with market-friendly economic reforms.

Meanwhile, in Brazil, where IPO activity this year fell to a seven-year low, 2013 will be “a year in which confidence will be restored,” said Kayath and other bankers, including José Olympio Pereira, the chief executive of Credit Suisse’s Brazilian unit.

“I‘m optimistic because of the high-quality pipeline of deals that is there. We hope that appetite for Brazil investments continues to increase among all types of investors,” Pereira said.

Mergers and acquisitions deals in Brazil will likely remain at a healthy pace next year, Pereira said, noting that “our global M&A team is constantly reaching out to us for support and advice - Brazil remains on the radar of the investment community.”

Equity markets in Brazil and Mexico, where valuations are up an average 20 percent from a year ago, are showing dissimilar trends, bankers said. For Mexico, such “re-rating” has taken place on optimism of an improved business outlook and more promising better long-term growth prospects, they said.

In the case of Brazil, the increase in valuations has been greater than in Mexico but for less benign reasons - stock prices have not declined at the same pace as the decline in earnings estimates despite weaker-than-expected growth, rising state meddling in some industries and the impact of the global economic slowdown.

The divergences between both markets “won’t be corrected in the short term but maybe in a horizon of 18 months to 24 months,” Kayath added. (Reporting by Guillermo Parra-Bernal; Editing by Phil Berlowitz)

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