LatinFinance - March/April 2014 - 18

cover
story
EQUITY

Talk of an investor capitulation is intensifying as investors
exit Latin American equities - although no-one, yet, has called it.
For Latin companies raising equity in 2014 will be a tough game.
Those that can are looking elsewhere. By Katie Llanos-Small

Courting
capital
I

n hindsight, february 6 was not the most fortuitous day to list on the new York Stock
exchange. a week earlier, data showed investors had pulled $6.3 billion from emerging
market equity funds - the most in two and a half years. investors repeated the exercise in
the days running up to Geopark's iPo, as fears about an emerging market bust burnt through
markets.
the chilean oil and gas firm had targeted pricing on february 5. that day, communication
to the market from lead managers BtG Pactual, itaú BBa and JPmorgan about the listing went
quiet.
"i heard that everything's fine, and that they just need to get the paperwork ready," said an
equity market specialist who had been following the deal that afternoon. "But that could just
be a tactic to stop any leaking."
Geopark was planning a complex transaction. Hoping to position itself in the US market,
where it saw better access to capital, the firm was set to delist from the london Stock
exchange's alternative investment market (aim), where it had a £225 million ($375 million)
market capitalization. to do so, it needed to pull off a new York listing.
the dubious market conditions had pushed others to hold deals. an iPo of office Depot de
méxico and a follow-on for Brazil's fras-le were postponed the same week.
Geopark may have been a small company operating in an industry that has fallen out of
favor with investors. But even latin america's blue chips are having a tough ride. Banco de
chile is a liquid, well liked stock that's been listed in the US for over a decade. a sale of 6.7
billion of shares was priced at 67 pesos ($0.12) apiece in late January, much less than the 74.38
pesos level where the stock was trading when the deal was announced earlier in the month.
and while a strong local bid underpinned the deal, international accounts wavered until
the last moment. they preferred to see how markets dealt with a raft of headlines on financial
and political difficulties in developing countries globally before committing to the sale.
"there was definitely a moment when it got really tight," said another person following the
deal.
an onslaught of woes has hammered emerging markets since the beginning of the year. a

18 l atinfina nce.com - March/April 2014

surprise devaluation of the argentine peso
in January startled many emerging market
investors with latin american holdings,
already shaken by troubles in turkey and
Ukraine.
cash is rushing out: investors pulled
$21.7 billion from emerging market equities
in the first six weeks of 2014, according to
Barclays data. While that only shows part of
the picture (see boxed text), it was still 43%
more than left such funds in all of 2013.
that is a function not just of political
unrest, but the expectations that better
returns are quickly becoming available in
the developed world as rates rise there.
"investors are getting bombarded right
now with quite a lot of negativity about
emerging markets," says chris Palmer,
emerging market equity portfolio manager
at Henderson Global investors. "Some
of it is well founded, in the case of some
of these countries that have not made all
the right moves. But some of it is not well
founded. there are countries like mexico,
for example, which have done a good job
of repositioning themselves for exactly this
kind of environment."
While Palmer declined to comment on
flows to his firm's funds, he said investors
could be left uncomfortably positioned by
market stress points. "What you end up
finding out is that many more investors
than you'd have originally thought have
far too much money in an asset class than
they'd like to have. When things start to

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