Brazilian IPOs lose steam as risks soar
Companies are pushing back and resizing plans for IPOs amid covid outbreaks and political turmoil in Brazil.
The Securities and Exchange Commission reports that 33 IPOs were registered in the first four months of 2021, raising more than R$30 billion and surpassing 28 IPOs last year.
IPO figures could be even better since at least 30 offers were suspended or canceled by companies over the same period, up from 25 cancellations in 2020. The market conditions and increased risk are cited by companies as reasons for postponing offers as investors increase asset discounts.
“Initially, foreign investors were entering into deals, but by February, they began to balk due to this perception of risk”, explains Milbank partner Fabiana Sakai.
Investor caution is due to factors such as the pandemic’s resurgence in Brazil and increased interest rates, according to Levindo Santos of G5 Partners.
The Brazilian Central Bank began normalizing its monetary policy in March after its benchmark rate dropped to historic lows the year before.
According to the weekly Focus Bulletin, market expectations for interest rates at the end of 2021 are 5.5%. At Copom’s May meeting, the authority is expected to increase rates to 3.5%.
“Investors are set to invest their money, but there is a perception of greater risk, which is reflected in price”, adds Santos.
Nine companies cancelled or suspended their stock offerings in April, while six others debuted on the Brazilian stock exchange (B3), some after pricing fell below expectations. GPS Group downsized its IPO and Mater Dei accepted a 20% price cut than expected.
The market is raising the bar, and I believe that is a positive thing, since investors are setting parameters and demanding higher quality. This is better done now than later, Santos says.
The precautionary movement will not trigger another “chicken hop” of IPOs in Brazil, a term that describes short-term movements that cannot be sustained for long periods of time.
“More companies are turning to the capital market to finance their operations, and IPOs will continue to be an important part of their strategies”, Fabiana argues.
Brazil’s 2007 IPO boom was largely concentrated in two or three industries. There are still many industries that are underrepresented on the stock market, but we’re also seeing a much higher quality of offerings,” Santos says.
Retail, healthcare, financial services, and agribusiness are expected to lead deals over the next few months. Companies such as GetNinjas, Athena Saúde, and Dotz will debut in B3 in May.
This article was originally published in Portuguese on Forbes Brasil — 05/05/2021
