Itau BBA’s Iunes Sees Brazil Equity Offerings Climbing to Most Since 2007

Brazil will have the most share sales this year since 2007 even after companies including Tereos Internacional SA (TERI3) canceled offerings and others raised less money than expected, according to Banco Itau BBA SA, the nation’s top equity underwriter.

“We’re heading towards much better conditions and more share offerings than in the previous three years,” Fernando Iunes, managing director for investment banking at Itau BBA, said in a July 13 telephone interview from Boston. “We’ll see some large companies or large deals going to the market. A lot of the Brazilian companies need access to capital.”

Retail, infrastructure and commodities firms will lead the increase in share sales this year as Brazil’s middle class boosts spending and companies from Copersucar SA to QGEP Participacoes SA seek funds for “ambitious” growth plans, Iunes said. Itau BBA managed 19 stock sales worth $2.6 billion this year, according to data compiled by Bloomberg. The Sao Paulo-based bank ranked fourth last year after Citigroup Inc., Banco Santander SA and Bank of America Merrill Lynch.

The benchmark Bovespa has fallen 14 percent this year through July 15, the worst-performer out of 18 major global stock indexes tracked by Bloomberg. Seven out of 10 companies that held IPOs in Brazil this year sold their shares below or at the bottom of their pricing ranges, including oil and gas producer QGEP and Qualicorp SA, a health-insurance broker controlled by Washington-based Carlyle Group.

Brazil had 25 initial public offerings and secondary offerings this year, amounting to 16 billion reais ($10 billion), compared with 18 deals worth 22.4 billion reais a year earlier, according to Bloomberg data. That’s the most deals since 2007 when 40 offerings totaling 26.6 billion reais were priced in the same period.
Reduced, Pulled Sales

“It’s true that valuation has been affected because comparable companies are trading down, so they’re trading at lower multiples than previously,” Iunes said. “Secondly, there’s more risk aversion in the markets overall, so there’s less appetite for new issues. IPO discounts are much higher now to reflect market conditions.”

There were 49 Brazilian share offerings in 2010, totaling 141.8 billion reais, Bloomberg data show. The value of share sales last year was exceptional because of Petroleo Brasileiro SA (PETR4)’s record $70 billion offering, Iunes said.

Copersucar, a Sao Paulo-based sugar exporter, said proceeds of its planned offering of as much as 2.7 billion reais will be used to almost double its port export capacity to 10 million metric tons a year from 5.5 million. The IPO would be the largest in Brazil since October 2009, when Banco Santander SA raised 13.2 billion reais in the listing of its local unit in Sao Paulo.
‘Favorable’ Outlook

Infrastructure investment will rise as Brazil President Dilma Rousseff spends as much as 955 billion reais in four years on roads, airports and projects linked to the 2014 World Cup and 2016 Summer Olympics in Rio de Janeiro.

“The long-term outlook for Brazil remains very favorable for the domestic consumer market, for infrastructure investment and for commodities,” Iunes said. “We know of a few more companies that are planning to go public and it will probably happen in the second half.”