January 16, 2020 / 11:05 AM / a month ago

Brazil 2019 equity offering surge could be just the start, bankers say

    By Tatiana Bautzer and Carolina Mandl
    SAO PAULO, Jan 16 (Reuters) - Brazilian stock offerings may
more than double in value this year from a bumper 2019, with the
country's lowest interest rates on record seen fueling optimism
and leading more companies to test the markets, bankers say.
    Despite a history of market volatility over the past decade,
many are hoping that a less interventionist government under
conservative President Jair Bolsonaro could give the current
boom staying power.
    "Brazilian capital markets have entered a long-term growth
cycle that may last years," said Fabio Nazari, head of equity
capital markets at Banco BTG Pactual SA. 
    After more than tripling last year, share offerings activity
tmsnrt.rs/2FO3yk9 is expected to accelerate, with some
bankers predicting that offerings may reach up to 200 billion
reais ($48 billion).
    Brazilian stock sales were equivalent to 85% of all equity
activity in Latin America in 2019, while Brazil's gross domestic
product is only about a third of the wider region's. 
    Privatizations or government stake divestitures,
particularly of units previously owned by state-controlled oil
company Petroleo Brasileiro SA, helped fuel the
growth.
    Fuel distributor Petrobras Distribuidora SA was
privatized through a $2.5 billion share offering. In the year's 
largest M&A deal, Petrobras sold gas pipeline company TAG to
France's Engie SA for $8.6 billion. 
    State divestitures will again dominate the markets this
year, as development bank BNDES plans to sell up to 120 billion
reais in shares it owns in listed companies such as meatpacker
JBS SA, Petrobras and Banco do Brasil SA. 
    Most of last year's 56 share offerings came from
already-listed companies, with only seven initial public
offerings among the transactions. This year may see up to 20
IPOs, said Roderick Greenlees, head of investment banking at
Itau Unibanco Holding SA.
    Some long-dormant industries such as homebuilding are coming
back to the market, said Eddy Allegaert, head of equity capital
markets for Latin America at JPMorgan & Chase. Two property
developers, Mitre and Moura Dubeux, have filed for IPOs so far.
    Morgan Stanley managing director Eduardo Mendez expects IPO
candidates to include fintechs as well as consumer products and
retail companies. 
    Brazil is expected to remain the region's largest source of
equity issues during the year, but Allegaert also expects some
equity deals in Mexico. The outlook is more difficult in
Argentina, where a sharp left turn politically and debt default
worries have spooked investors.
    
    M&A GROWTH
    Bankers expect a more moderate increase in M&A activity,
including an expected multibillion-dollar sale of Petrobras
refineries, the long-awaited privatization of power holding
company Centrais Eletricas Brasileiras SA and some
divestitures by Banco do Brasil.
    Cash-starved regional water and sanitation providers like
Sabesp, which the state of Sao Paulo has pledged to
privatize, could be another source of growth.
    "Water and sanitation will require a massive amount of
investments, similar to what the power industry has attracted
over the last 20 years, since the first privatizations," said
Eduardo Miras, Brazil head of investment banking at Citi.
    Andres Sommer, head of M&A for South America at Morgan
Stanley, also expects large deals in the power industry, while
Ricardo Lacerda, founding partner of BR Partners, sees more
activity in infrastructure, retail and consumer industries.
    As companies raise cash in capital markets and the economy
recovers, private M&A is expected to pick up, too, with foreign
investors accounting for part of the demand.
    "There's a perception that Brazil's economic recovery is
solid, which is boosting foreign investors' interest in
acquiring companies there," said Renato Boranga, head of mergers
and acquisitions at Banco Santander Brasil SA.
               
   Brazil- Equity Capital Markets League Table 2019 
 Book Runner        Proceeds    Number of
                    ($          issues
                    billion)    
 Itau Unibanco      3.33        34
 JPMorgan           3.06        17
 Bank of America    2.76        22
 Morgan Stanley     2.37        20
 Banco BTG Pactual  2.17        34
 Citi               2.04        12
 Bradesco           1.97        25
 Santander Corp     1.71        18
 Credit Suisse      1.68        12
 XP Investimentos   1.38        13
 Industry Total     28.05       56
  
  Latin America- Equity Capital Markets League Table 2019    
 Book Runner      Proceeds    Number of
                  ($          issues
                  billion)    
 JPMorgan         3.81        20
 Itau Unibanco    3.50        36
 Morgan Stanley   3.4         23
 BTG Pactual      3.16        39
 Bank of America  3.13        24
 Citi             2.06        13
 Bradesco         1.98        25
 Santander        1.73        19
 Credit Suisse    1.70        13
 Goldman Sachs    1.40        12
 Total            33.02       68
    
    Brazil- M&A League Table
 Financial Adviser   Deal        Number of
                     volume ($   deals
                     billion)    
 BR Partners         14.28       21
 Santander Corp      14.10       16
 Citi                13.36       10
 Morgan Stanley      10.17       5
 Evercore Partners   8.68        1
 Itau Unibanco       8.04        45
 Bank of America     6.88        11
 Rothschild & Co     5.63        15
 Banco BTG Pactual   4.12        36
                                 
 Industry Total      50.64       688
 
Latin America- M&A League Table 2019
 Financial adviser    Deal value  Number of
                      ($          deals
                      billion)    
 Santander Corp       26.54       34
 Citi                 22.5        25
 Bank of America      20.76       22
 Morgan Stanley       20.54       16
 BR Partners          15.37       22
 Goldman Sachs        14.58       21
 Itau Unibanco        9.59        51
 Evercore Partners    9.4         2
 JPMorgan             8.98        10
 Rothschild & Co      7.45        22
 Industry Total       96.79       1,281
 
    
  
    Source: Refinitiv
    

($1 = 4.1385 reais)


    
 (Reporting by Tatiana Bautzer and Carolina Mandl; Editing by
Christian Plumb and Leslie Adler)
  
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