Chilean companies are preparing a record number of initial public offerings as the country’s economy grows at the fastest pace in more than a decade and its benchmark equity index outperforms Latin American peers.
Companies may raise as much as $9.6 billion through next year from IPOs and subsequent offerings, said Santiago Lecaros, a money manager at IM Trust SA in Santiago. Of at least 12 companies to register or express interest in listing shares, IM Trust estimates seven will do so this year. That would top the record five IPOs in 2005, according to the Santiago exchange.
Chile’s IPO pipeline is growing along with a surge in global offerings. There were 1,787 IPOs worldwide in the 12 months through April 19, a 58 percent increase from the same period a year earlier, according to data compiled by Bloomberg. Twenty-two of those were in Latin America.
“Right now, economic and regulatory conditions in emerging markets are good for growth,” Patricio Vargas, chief financial officer of CFR Pharmaceuticals SA, said April 11, when the drugmaker announced plans to raise $400 million on the Santiago bourse. “We’ve reached a stage as a company that to continue growing as we did in the past would be too slow.”
CFR and salmon farmer AquaChile SA are turning to the stock market after the Ipsa index jumped 37 percent in dollar terms in the year through yesterday, the best performance among major Latin American indexes. The Ipsa index rose 1.1 percent today at 9:02 a.m. New York time, reducing its year-to-date loss to 4.1 percent.
Chile’s economy may grow as much as 6.5 percent this year, which would be the fastest annual expansion in more than 10 years, the central bank said April 4.
Together CFR and AquaChile plan to raise a total of $750 million next month. That would exceed the amount of all Chilean IPOs in the previous four years, according to data compiled by Bloomberg. The Santiago exchange has averaged 1.8 IPOs a year since 1996.
Health services company Cruz Blanca Salud SA, toll road operator Autopistas do Pacifico SA and Australis Seafoods SA are arranging sales, according to regulatory filings. Food company Agrosuper SA also plans to go public, according to a La Tercera newspaper article confirmed by the company’s external public relations representatives. Supermercados del Sur SA, controlled by private equity firm Southern Cross Group, is likely to make its trading debut as well, Raul Sotomayor, a Southern Cross partner, said Jan. 11.
At the same time, Chilean companies that already trade are seeking equity financing for expansions. Banco de Chile and Corpbanca are working to raise about $500 million and $600 million, respectively, to fund loan growth. Retailer Cencosud SA said April 12 it would seek approval to sell $2 billion of new shares in the next three years to fund acquisitions.
‘Exert Some Pressure’
“More than the number of IPOs, the larger primary and secondary share offerings will exert some pressure on the local market,” Katherine Boragk, director of investments at Celfin Capital SA’s wealth management division, said by e-mail.
Banco BICE’s brokerage unit last month cut its year-end Ipsa target to 5,200 from 5,400, citing the increase in new share sales and the prospect of further central bank interest-rate increases. Chile’s central bank has raised rates more than any other tracked by Bloomberg in the last year.
“We’ve been concerned pretty much all year that this is a large chunk of money for this market,” said Stacy Steimel, who helps manage $800 million in Latin American stocks at PineBridge Investments. “The market performed so well last year and the sheer size of the money - it’s a lot to absorb.”
Steimel said she’s not considering changing her “underweight” position in Chilean stocks, even as the Ipsa trades at 16.9 times estimated earnings, below its historic average of 17.5, according to data compiled by Bloomberg.
While the new offerings could shave as much as 1 percentage point from the IPSA’s return this year, there’s enough demand from local pension funds and foreign investors, IM Trust’s Lecaros said. Celfin sees the index gaining 10 percent this year while IM Trust forecasts an increase of about 14 percent. Chile’s pension funds had $148 billion under management at the end of last month, according to the industry regulator.
Chile may face international competition to attract global investors. Mexico will have about 10 IPOs this year, according to Javier Artigas Alarcon, senior vice president for strategic planning at Bolsa Mexicana de Valores SAB.
“In the long term, the sales are a great thing as the companies are funding growth,” Steimel said. “It’s in the short term that liquidity will be affected and investors won’t have the ability to evaluate the number of IPOs happening simultaneously.”