Bankers are cautiously optimistic that primary market activity in Latin America could pick up in the second half of the year after a drought of initial public offerings (IPOs).
Slowing regional growth, a troubled outlook for China and uncertainties surrounding the US Federal Reserve’s quantitative easing tapering measures have created a bleak outlook so far this year.
No primary stock offerings at all were completed in the period to March 28 this year, according to Dealogic, a capital markets data company. Seven IPOs were completed in the same period last year, worth just shy of $3bn.
Follow-on sales have occupied stock markets, but volumes slumped 40% year-on-year in the year to March 28, to $4.1bn.
Bankers believe activity could pick up, but fear that a legion of mitigating factors – regional elections, Brazil’s World Cup – may keep activity to a minimum.
Many point to faltering China and the Fed taper, but above all to a lack of regional growth drivers. “At end of the day, growth is the main issue, and that’s clearly driven by a set of external and internal factors,” said Gian Maltoni, vice president of Latin American ECM at JP Morgan.
A case in point is Mexico, which has failed to post the levels of growth investors expected. GDP expanded just 0.2% year-on-year in the final three months of 2013, against market expectations of 0.6%
“If Mexico was going faster,” noted a Mexico City-based origination banker, “many of the equity deals currently sitting on the sidelines would have come to market.”
Already this year, three major Mexican corporates, Grupo Gigante, Office Depot, and Viva Aerobus, have shelved primary capital raising plans. Investors remain overweight on Mexico thanks to government efforts to deregulate the energy and telecoms sectors, but, added Maltoni, “they want to see more growth”.
Nor is the lot of the origination banker much better in Brazil’s faltering economy, traditionally the region’s busiest IPO market. The year started badly, with auto fleet outsourcer Ouro Verde and infrastructure group Invepar postponing their primary sales.
Worse, the only clear-cut windows for listing candidates are before the June World Cup, hosted by Brazil, and in September, a month before the general election. “Most will go for the September window, but not all will succeed,” said Carolina Lacerda, managing director and head of investment banking at UBS Brazil.
Bankers remain divided on whether primary equity capital markets will gain in pace and confidence as the year advances. Few expect to see the sort of outsized sales that sporadically dot regional stock markets. Lacerda warned that emerging market sentiment in general “needs to improve in order for Latin America sentiment to improve. We don’t see a hot year for IPOs given the current underlying sentiment.”
Others see reasons for cheer — so long as the region can regain its economic mojo. JP Morgan’s Maltoni points to rising issuance in Brazil in the second half, along with “a few big and interesting opportunities in Mexico, Chile, and Peru”.