LatinFinance - March/April 2014 - 20

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underperform, or go bad, you find out people have been hanging
on, or they have a lot of embedded profits from the past.
"although we've had outflows from em, there hasn't been any
capitulation. Some strategists are saying that capitulation will come
in the future, but it's hard to know, because it's hard to get simple
data about whether people are overweight."
While debate advances on the meaning of a capitulation in fund
flows, for many latin american companies, the result is nonetheless
stark. Stock markets have taken a beating: chile's fell over 8% in
January, although it staged an impressive recovery in february.
Still, mexico's had fallen 6.5%, and Brazil's 5.7%, by february 24.
consequently, companies' prices have performed poorly, and the

A view on the mArket: stocks
continue to struggle

odds of raising capital through the public equity markets are low.
Doing so this year could turn out to be a game only for the very
brave, the very desperate, or the foolhardy.
At a push
Geopark pushed ahead, proving that latin american borrowers
can raise equity in spite of dire market conditions. Yet the deal was
around half the size it had hoped for. the firm had planned to sell
20 million shares at $8 to $10 each, but ended up selling 14.3 million
at $7 each. existing owners agreed to buy 8 million shares.
for others, the cost of pushing through with a transaction is
simply too great. many companies are likely to wait for better times,
or look for better options, to raise capital.
mexican low-cost airline Viva aerobus felt that way when it
postponed its initial public offering a few days after Geopark
was priced. it blamed the bad markets, but said it would seek an
opportunity to relaunch the deal.
Keeping things local is another option. larger sums, and greater
liquidity, are typically available with an international listing.
companies such as colombian builder conconcreto recognize that -
the firm's president Juan luis aristizábal told a LatinFinance event in
february that an international listing would help it access the equity
necessary for its capital-intensive business. But the firm started with

20 l atinfina nce.com - March/April 2014

a local listing in 2010, when it targeted a smaller deal size.
now, in many latin markets, the local investor base is increasingly
a driving force for equity sales. Brazilian portfolio managers look
after growing asset pools, making them ever-more relevant to local
deals, says Sebastien chatel, head of investment banking at Brasil
Plural. "there used to be a time when they would be something like
20%, 25% of the demand for an offering, and i'd say they're [now]
50%," he says. "i think that trend will only continue to grow."
low returns have encouraged this: Brazilian investors had to
rethink their fixed-income focus last year as the central bank slashed
interest rates. that is paying off for companies elsewhere in the
region, also. equity offerings from Banorte and Graña y montero
last year had "massive" latin american participation, says enrique
corredor, head of ex-Brazil equity capital markets at BtG Pactual.
"Brazilian asset managers and hedge funds are looking outside
the country, given the poor performance of their home market. But
the real difference has been the global guys, who have set up their
latin america operations in São Paulo."
the canada Pension Plan investment Board was the most recent
international investor to set up an office in the region, announcing
a São Paulo presence in february, just a month after it opened an
office in new York. the fund manager, which has $5 billion canadian
dollars ($4.5 billion) invested in latin america, said the Brazil move
would strengthen its connections in the region and help it better find
and manage its investments.
Bancolombia is the latest to take advantage of the potentially
more sheltered local markets - even though, with an nYSe listing,
it could have tried an international follow-on. the lender was set
to wrap up a $1.2 billion equivalent capital raise on the colombian
stock exchange at the end of february.
But even as the local bid grows, convulsions in global equity
markets are making other options look increasingly attractive. for
some, borrowing money will do the trick.
Grupo Gigante found that. it put office Depot de méxico up for
sale this year, looking for funds to repay part of a bridge loan for
its 2013 acquisition of the half of the stationer that it did not own.
the deal was targeting 4.3 billion pesos ($324 million). When it
postponed the iPo in february, Gigante said it was in the final steps
of securing a long-term credit to cover the debt instead.
Private equity is a growing option for companies that want to offer
a capital stake, particularly in Brazil. Data from the latin american
Private equity and Venture capital association showed such firms
invested $8.9 billion in 2013, a six-year high.
Private support for public listings could also prove popular. Just as
major shareholders in Geopark stumped up to assist the firm's new
York iPo, so others are using similar tactics.
telecom firm oi will test the water with a novel support tactic as
soon as april. it needs to raise as much as 14 billion reais ($6 billion)
for a merger agreement with Portugal telecom to go through. While
much of that is coming from existing shareholders and Portugal
telecom itself, oi is targeting 5 billion reais to 6 billion reais from a
public sale of equity - a large amount even in good markets.
the company has said that the investment banks working on
the transaction have agreed to support the public equity sale.
LatinFinance understands that, under that agreement, the leads
must first find a price at which the share sale will be fully subscribed
- and then they can support the deal with additional orders from
their own accounts.
that arrangement follows a deal from Brazilian biofuel firm
Biosev a year ago. it offered a put option to buyers of its first listing,
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