• Ibovespa’s 2016 surge isn’t enough to end 14-month drought
  • Five secondary offerings may price by year-end, firm says

Brazil’s record 14-month dry spell for initial public offerings will probably last at least through the end of this year, Morgan Stanley said, even after the nation’s stock market surged more than any other major exchange in 2016.

The only equity offerings likely to be priced this year are from firms that are already public, Eduardo Miras, co-head of Brazil investment banking for New York-based Morgan Stanley, said in an interview this week. He estimated that about five such deals are in the pipeline, all restricted to institutional investors. Such sales usually can be completed in two weeks, while deals that include retail buyers can take longer than two months, exposing the company to more market risk, Miras said.

“The volatility isn’t over,” Miras said. While impeachment proceedings against suspended Brazil President Dilma Rousseff are mostly priced in, “we still need to see approval of the reforms needed for the fiscal adjustment to support the market further. The U.S. presidential election could also bring uncertainties,” he said. Rousseff faces an impeachment trial expected to begin Thursday and wrap up this month. 

Brazilian companies haven’t brought an IPO to market since June 2015, according to data compiled by Bloomberg, as the worst recession in a century and a tumble in commodity prices weigh on corporate profits. The political crisis intensified investor anxiety already battered by two straight years of economic contraction.

The IPO dry spell is the longest since at least 1999, when market regulator CVM started to track sales. Insurance broker FPC Par Corretora de Seguros SA was the last firm to go public in Brazil, in a 602.8 million-real ($187 million) transaction led by Banco Bradesco BBI SA.

Falling Rank

Total equity offerings in Brazil are down 72 percent this year to $5.7 billion, according to data compiled by Bloomberg. Once the world’s second-biggest emerging market for IPOs behind China, Brazil didn’t even crack the top 15 last year, ranking behind Trinidad & Tobago and Vietnam.

Deals may start to flow as firms seek out their best financing options in a difficult market, Alessandro Zema, Morgan Stanley’s co-head of Brazil investment banking, said in the joint interview.

“There are several companies looking to the equity markets in order to rebalance their capital structure and reduce leverage, while others will use the proceeds to fuel growth opportunities,” Zema said. “The market for international debt issuance reopened to Brazil in May, after an 11-month drought, and now we’re seeing an improvement in the equity market as well.”

Itau Estimates

Brazil could see as much as 10 billion reais in 10 equity offerings during the second half of this year, including IPOs, Christian Egan, deputy head of corporate and investment banking at Banco Itau BBA SA, said in a meeting with reporters and other bank executives earlier this week.

Itau BBA is the second-biggest equity underwriter this year in Brazil, while Morgan Stanley is No. 8, data compiled by Bloomberg show. Banco Santander Brasil SA ranks first.

“Equity capital markets are likely to surprise in the next 12 months,” Egan said.

One transaction might come from BRF SA, Brazil’s biggest processed-food maker. The company is considering selling stock in its Sadia Halal unit in a deal that could be as large as $1.5 billion, people familiar with the matter said last month. An IPO that big would be Brazil’s largest since BTG Pactual Group raised about 3.66 billion reais in 2012, data compiled by Bloomberg show.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE