IPO pipeline set to be unblocked
The number of IPOs in Latin America’s two largest markets is set to increase this year; investors watch with interest
Investors are turning slightly more bullish on Brazil while Mexico is suffering in the short-term at least thanks to plans to open up key sectors, especially in telecoms and cable television.
The good news for Brazil could open up the IPO market with a pipeline of deals ahead. The Mexican stock market is up 12.34% over the last 12 months. Meantime, Brazils market is down close to 16.9% over the same period.
Specific stocks on Mexicos exchange have been hurt recently by the new governments plans to enhance competition in key sectors. Telecom giant América Móvils shares fell three consecutive days, losing 11%, before rallying yesterday. The declines were echoed in related-sector shares such as Televisa.
David Ross, managing director at fund manager Chevy Chase in Bethesda, Maryland, with $13 billion under management, was set to visit Mexico imminently. He said he was keen to invest but added it is hard to find decent valuations and the undervalued stocks are outside the mainstream.
High valuations mean money could flow away into other markets, says Ross. Today, there is cautious optimism on valuations in Brazil with higher economic growth, which should increase to 3% from last years 1%. That should help initial public offerings (IPOs).
The biggest deal in the pipeline is from the insurance subsidiary of Banco do Brasil, BB Seguridade, which is slated to launch an IPO in later April and may raise R$5 billion.
The insurer has already selected eight bookrunners including Banco do Brasils investment banking arm to bring the deal to market. Allan Hadid, CEO at BRZ Investments in São Paulo, is interested and thinks foreign participation will be high in this well-known name.
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Although investors are not so harsh on Brazil as they were last year, Hadid wondered if the market would be able to digest many deals. While the consumer sector is likely to prove popular, oil stocks have been hurt by erratic finds while investors are wary of utilities thanks to government intervention, he said. He believed that there would be between five and 10 IPOs this year.
After a series of pulled deals, the most recent IPO, Linx, performed very well in the immediate aftermarket. Alexander Gorra, senior strategist and head of international platform at BNY Mellon, participated in Linx. The retail-focused company is in the IT sector and has a 20-year track record.
He said there was strong foreign demand for such a small deal, a size usually eschewed by foreign investors who seek liquidity. He is also cautious on the number of deals but is following key ones such as BB Seguridade and Multiplan. Its a very demanding market so dont expect a deluge, he said. Still, that will beat last years record when just three IPOs came to market and two priced below expectations.
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