IPO Rebound Masks Worst Selloff: Corporate Brazil
(Corrects price-to-book ratio for Biosev in fifth paragraph of story published April 29.)
The busiest month for Brazilian initial public offerings in five years saw Banco do Brasil SA and Gol Linhas Aereas Inteligentes SA raise cash by selling stakes in units amid the worst stock decline in emerging markets this year.
Four companies raised 11 billion reais ($5.5 billion) in IPOs this month, excluding the so-called greenshoe option for underwriters, the most since six companies went public in October 2007, data compiled by Bloomberg show. Banco do Brasil, Latin America’s biggest bank by assets, said April 25 it raised 8.5 billion reais by selling shares of its insurance unit in the world’s biggest IPO this year. Gol airlines sold stock in its Smiles frequent-flier program, raising 1 billion reais.
The rebound in share sales after only three companies went public last year, the fewest since 2003, comes as Brazil’s benchmark Ibovespa index is suffering the biggest selloff among major emerging markets. Demand for shares in Smiles and Banco do Brasil’s BB Seguridade Participacoes SA (BBSE3) was probably helped by the parent companies being well known in the local market and probably isn’t a sign that investors have more confidence in Brazilian stocks, said Gustavo Mendonca, an economist who helps manage 1 billion reais at Saga Capital in Rio de Janeiro.
“There’s still an unfavorable view for Brazilian stocks in the market -- the fundamentals haven’t changed,” Joao Pedro Brugger, a portfolio manager at Leme Investimentos, said by telephone from Florianopolis, Brasil. He hasn’t bought shares in any IPO this year. “Things being sold weren’t exactly cheap. Price-wise, there are more interesting options in the market,” he said.
Biosev SA (BSEV3), the sugar-cane processor taken public by Louis Dreyfus Holding BV on April 15, trades at 0.8 times its book value, matching the ratio for Petroleo Brasileiro SA, the heaviest weighted stock on the Ibovespa. That compares with an average price-to-book value, or the ratio of a stock’s price divided by the book value per share, of 1.1 times for the benchmark equity gauge, according to data compiled by Bloomberg.
Three of the four companies that held IPOs so far this year and have started trading have fallen since their offerings. Biosev sank 14 percent in its trading debut on April 23, the biggest first-day drop in Brazil since 2008, even after pledging to buy back shares for the same price plus interest if the stock is trading lower than the IPO level one year after the sale. Alupar has dropped 3.7 percent from its IPO price since shares started trading on April 24.
Press officials at Banco do Brasil, Alupar and Gol all declined to comment on the results of their offerings, saying they are in a so-called quiet period. Biosev didn’t respond to a phone call on April 26 seeking comment.
Smiles rose 6.8 percent to 23.17 reais at 10:36 a.m. in Sao Paulo in its trading debut. BB Seguridade fell 3.5 percent to 16.40 reais.
The benchmark index has declined 10 percent this year, the most among 19 major emerging-market exchanges.
Concern that Brazil’s economic recovery will falter and that government intervention will curb earnings growth in some industries are preventing the Ibovespa from rebounding, Saga Capital’s Mendonca said.
“The number of deals in such a short period of time, for me, is more of a coincidence,” Mendonca said in a telephone interview. “Some of them were also not typical IPOs, but instead companies that are already listed, that everybody knows, and that were selling stakes in their subsidiaries. That lessens risks a bit.”
President Dilma Rousseff’s administration last year announced measures to force companies to cut electricity prices, lending costs and mobile-phone bills in an attempt to boost growth that slowed in 2012 to 0.9 percent, the second-worst performance in 12 years. Gross domestic product is forecast to expand 3.1 percent this year, the median estimate among 40 economists surveyed by Bloomberg.
The government last week announced tax cuts for companies including petrochemicals and ethanol producers, a sign that Brazil’s attitude toward business could be changing, Citigroup Inc. analysts said.
“These events suggest the tide of worry over state intervention in business is ebbing,” Sao Paulo-based analyst Stephen Graham and Nicolas Riva in New York wrote in the note to clients dated April 24. “The government has been more careful in announcements and is consulting more with business.”
Offerings such as those held by Gol and Banco do Brasil last week may not be good for the companies in the long run because they are giving up stakes in profitable businesses to raise cash quickly, said Saulo Sabba, a portfolio manager at Faros Investimentos in Rio de Janeiro.
Gol, the world’s most indebted airline, will use the proceeds of Smiles’ IPO to pay off debt. BB Seguridade’s deal will give “more capital room” for Banco do Brasil, the lender’s Chief Executive Officer, Aldemir Bendini, said in an interview on April 3.
“Actually if things were better for them, they probably wouldn’t be doing those sales,” Sabba said in a telephone interview. “So, in a sense, we can’t really say that all those IPOs are happening because things are good. In some cases, it’s actually the opposite.”