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Bolsonaro emerges as risk factor for Brazil IPO pipeline

09/14/2021 | 07:19am EDT
FILE PHOTO: Riot police officers sit in front of Brazil's Supreme Court ahead of September 7 demonstrations in support of President Jair Bolsonaro's government, in Brasilia

SAO PAULO (Reuters) - Competition, the pandemic and sectoral demand are common challenges facing companies planning initial public offerings (IPOs), but Brazilian companies have started to flag a new risk: political upheaval from far-right President Jair Bolsonaro.

Cosmetics maker Coty and retailer Cencosud's Brazilian units included the risk of a presidential impeachment in their recent offering prospectuses, while Coca-Cola Co's distributor Solar Bebidas SA cautioned about turmoil ahead of the 2022 presidential elections.

Bolsonaro's recent confrontation with Brazil's Supreme Court amid an economic crisis has raised fears over the country's reform process and threatens to poison the environment for 25 IPOs-in-waiting, which - added to this year's 44 listings so far - would break Brazil's record for IPOs.

Last week, Bolsonaro toned down his fight with the country's top court, which authorized probes of him and his allies based on allegations that they had attacked Brazil's democratic institution.

But market participants still question how long the truce will last. The Bovespa benchmark is down 2.9% this year in U.S. dollar terms, one of just five global indexes in negative territory for the year.

"The outlook for IPOs is more challenging. A potential institutional crisis may reduce chances of approval of reforms needed to boost the economy's growth", said Gustavo Miranda, investment banking head at Banco Santander Brasil SA.

Even before the pro-Bolsonaro demonstrations on Sep. 7, IPOs were facing a bumpier time amid sluggish growth, high unemployment and a severe drought pressuring food and energy prices.

Cement maker Intercement Brasil decided to cancel its share offering in July as investors offered lower valuations, while aluminum producer Companhia Brasileira de Aluminio, among others, had to slash their offer prices to sell their shares.

"We have been advising companies that are planning an IPO to be ready in case market conditions recover over the coming weeks," said Roderick Greenlees, head of investment banking at Itau BBA, ruling out a complete shutdown of markets for share offerings.

So far this month the only two companies that are braving the market to try to conclude IPOs are gym chain BlueFit and pharma company Althaia, both slated to price next week.


Poor performance among IPOs is also depressing investors' appetite for new transactions, said Marcelo Millen, head of equities capital markets at Citigroup in Brazil. Nearly half of the companies listed over the last two months are trading below their IPO prices.

Asset managers, facing a paucity of new money to invest in additional shares, have grown especially picky. Stock and hedge funds had net outflows in September, although most still show inflows for the year.

"We are looking at new IPOs with a magnifying glass because we expect more volatility as the 2022 elections approach," said Sara Delfim, managing partner at asset management firm Dahlia Capital, adding that some sectors may be able to bypass the current turbulence.

Brazilian companies considering IPOs in the United States such as fintech Nubank, payments company Conductor and Hotmart, a platform for content creators may buck the election volatility, as their growth is less reliant on the macro environment.

(Reporting by Carolina Mandl, additional reporting by Tatiana Bautzer and Paula Laier; Editing by Christian Plumb and Aurora Ellis)

By Carolina Mandl

© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
BANCO SANTANDER (BRASIL) S.A. -0.43% 16.4 End-of-day quote.-24.28%
CENCOSUD S.A. -3.86% 1192 End-of-day quote.-5.77%
COMPANHIA BRASILEIRA DE ALUMÍNIO -7.35% 13.73 End-of-day quote.0.00%
09/14Bolsonaro emerges as risk factor for Brazil IPO pipeline
08/30COMPANHIA BRASILEIRA DE ALUMÍNIO (BO : CBAV3) completed the acquisition of a 49% stake in ..
08/11Companhia Brasileira De Alumínio Announces Earnings Results for the Second Quarter Ende..
07/13Companhia Brasileira de Alumínio has completed an IPO in the amount of BRL 1.4 billion.
05/17Companhia Brasileira de Alumínio has filed an IPO.
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Sales 2021 7 965 M 1 418 M 1 418 M
Net income 2021 456 M 81,2 M 81,2 M
Net Debt 2021 1 439 M 256 M 256 M
P/E ratio 2021 17,8x
Yield 2021 0,14%
Capitalization 8 181 M 1 456 M 1 457 M
EV / Sales 2021 1,21x
EV / Sales 2022 1,02x
Nbr of Employees -
Free-Float 99,0%
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Companhia Brasileira de Alumínio Technical Analysis Chart | CBAV3 | BRCBAVACNOR5 | MarketScreener
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Mean consensus BUY
Number of Analysts 5
Last Close Price 13,73 BRL
Average target price 18,00 BRL
Spread / Average Target 31,1%
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Ricardo Rodrigues de Carvalho Chief Executive Officer
Luciano Francisco Alves Director-Finance & Investor Relations
Luis Ermirio de Moraes Chairman
Eduardo Borges de Andrade Filho Independent Director
Franklin Lee Feder Director
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