Alupar Sinks in Debut After Pricing IPO at Low End of Target

Alupar Investimento SA tumbled in its Sao Paulo trading debut after the Brazilian electricity transmission and generation company priced shares in an initial public offering at the low end of its target range.

The stock sank 5.4 percent to 17.50 reais at the close of trading in Sao Paulo from the 18.50 reais offering price after dropping as much as 6.2 percent. The Ibovespa equity benchmark gained 0.2 percent while the Bovespa Electric Energy Index declined 0.5 percent.

Alupar had estimated that shares would price within 18.50 reais to 21.50 reais, according to a prospectus. Concern about President Dilma Rousseff forcing electric utilities to cut rates as part of her effort to boost growth and control inflation reduced demand for the IPO, according to consulting firm Empiricus Research.

“The market thinks that all utilities are the same, but actually Alupar’s situation is much better than its peers’ because the rules of its contracts don’t contemplate rate resets and are due only after 2030, so they are not subject to the review the government is doing now,” Beatriz Nantes, an analyst at Empiricus, said in a phone interview from Sao Paulo.

Measures Rousseff announced in September include revised conditions for the renewal of licenses expiring between 2015 and 2017. The government is forcing power utilities to cut rates by as much as 28 percent.

Alupar’s IPO was the fourth in Brazil this year. Software developer Senior Solution SA has dropped 1.7 percent since it started trading in March. Biosev SA, Louis Dreyfus Holding BV’s Brazil unit, tumbled 13 percent since its debut on April 19. Technology company Linx SA is up 15 percent since it started trading in February.

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