Latin Finance - September/October 2009 - 33

Brazil equity Good Days, Bad Ways by John Rumsey razilian markets are again à la mode. The economy and consumer spending are improving and as all eyes turn to China, the halo of Brazil’s BRIC status and depth in commodities excites investors scouring the globe for reasonably-priced growth. The fly in the ointment is a big tussle over valuation and fears of a return to the irrational exuberance of the last boom. Investors have underpinned a rise from lows of less than 30,000 in the Bovespa index last October to 41,518 at the turn of the year to levels of over 54,000 in late July, a rise of 30% year-to-date. The market is one of the best performing in the world and beaten only by Peru regionally, which is up more than 100% since the start of 2009. The ride, however, has been far from smooth, with big retractions – June was a down month overall – and has been marked by high volatility while the index is still a long way off the highs of over 73,000 achieved in May of last year. Many of the arguments for nudging firms to raise equity capital put forward by Brazil bulls are a rehash of old ideas, including a solid macro position and emergence of a middle class desperate to join the global consumer bandwagon. The difference from the last boom-and-bust, say bankers, is that the rest of the world no longer enjoys the same economic growth prospects, making Brazil an exciting destination. Investors see Brazil coming out of the crisis sooner than the rest of the world, having joined it later, says Daniel Wainstein, co-head of investment banking for Brazil at Goldman Sachs in São Paulo. That fits into a wider picture of demand pick-up in large emerging markets, he notes. Investors sunk $26.5 billion of portfolio investment into China and Brazil in the second quarter, up from $22 billion over the equivalent period the year before, Wainstein says. B Brazil is firmly back on the world equity map, following a slew of blowout deals. Some fear a return to the reckless conditions of 2007, and investors are wary. Deals since the market re-opening have been specific situations and do not point to a wide upturn yet, reckons Mauro Cunha, head of equities at asset manager Mauá Investments in São Paulo, with some $250 million under management. “We could have had more IPOs were it not for the problems of the past boom, which was marked by flashy projections which just extrapolated forward the very best results, and a rush to raise money by ill-prepared companies,” he says. “The incentive structures [for deals] were not very healthy,” tending to emphasize the best interests of owners and bankers rather than investors, Cunha believes. This has extracted a cost on credibility and is likely to stymie the return of the new issue market, he says. Hollywood Sequel Buyside Caution Investors are looking more closely at individual stories and treating roadshow presentations with a generous pinch of salt, after forecasts provided in the last boom proved to be wildly optimistic. The bulk of Brazilian IPOs have underperformed, points out Nicholas Morse, Latin America fund manager at Schroders in London whose flagship SISF Latin America Fund has $1 billion. That suggests that companies are pushing the envelope on price and he often prefers to buy in the secondary. The tentative re-opening of the Brazilian market started with the tester of power generator CPFL, which raised 500 million reais mid-May. The deal was successful and placed at a 2% discount to the previous day’s trading, says José Olympio, MD and head of Brazilian investment banking at Credit Suisse, lead bank on the deal. This was the largest block trade, where institutional parties fix a price, in a book building exercise that was undertaken overnight, he says. As might be expected, CPFL was proof against the volatility in the market, coming from a wellestablished company in a dowdy sector that is known for being defensive and protected on the downside. The real party opener was VisaNet June 29, which was revived after being postponed in March. It was the biggest IPO this year until a deal by China’s largest construction firm July 29 knocked it off its perch. The processor of all Visa card transactions performed in Brazil played safe, and like a Hollywood sequel, offered investors a tried and tested formula. A secondary deal by Redecard, the firm’s only rival in Brazil, in early 2009 had been a blow-out success, following a 2007 IPO. VisaNet priced at 15 reais, the top of the 12-15 reais indicated range with a book that was several times oversubscribed. It raised 8.4 billion reais and the stock rose September/October 2009 LatinFinance 33

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009

Latin Finance - September/October 2009
Contents
Investment Banking Survey
Who Said That?
OTPP Investment Strategy
Central Bank Scorecards
Brazil Liability Management
Real Estate Equity Resurrected
Structured Finance Forecasts
Grim Outlook. Reform Required
Banorte Seeks to Grow
Peru Spending Hits a Block
BCP Sees Better Days
Caribbean Investment Report
Sustainable Banking
Legal Services Survey
Parting Shot
Latin Finance - September/October 2009 - Latin Finance - September/October 2009
Latin Finance - September/October 2009 - Cover2
Latin Finance - September/October 2009 - Contents
Latin Finance - September/October 2009 - 2
Latin Finance - September/October 2009 - 3
Latin Finance - September/October 2009 - 4
Latin Finance - September/October 2009 - 5
Latin Finance - September/October 2009 - 6
Latin Finance - September/October 2009 - 7
Latin Finance - September/October 2009 - 8
Latin Finance - September/October 2009 - 9
Latin Finance - September/October 2009 - 10
Latin Finance - September/October 2009 - 11
Latin Finance - September/October 2009 - 12
Latin Finance - September/October 2009 - 13
Latin Finance - September/October 2009 - Investment Banking Survey
Latin Finance - September/October 2009 - Who Said That?
Latin Finance - September/October 2009 - 16
Latin Finance - September/October 2009 - 17
Latin Finance - September/October 2009 - 18
Latin Finance - September/October 2009 - 19
Latin Finance - September/October 2009 - 20
Latin Finance - September/October 2009 - 21
Latin Finance - September/October 2009 - 22
Latin Finance - September/October 2009 - OTPP Investment Strategy
Latin Finance - September/October 2009 - 24
Latin Finance - September/October 2009 - 25
Latin Finance - September/October 2009 - Central Bank Scorecards
Latin Finance - September/October 2009 - 27
Latin Finance - September/October 2009 - 28
Latin Finance - September/October 2009 - Brazil Liability Management
Latin Finance - September/October 2009 - Real Estate Equity Resurrected
Latin Finance - September/October 2009 - 31
Latin Finance - September/October 2009 - 32
Latin Finance - September/October 2009 - 33
Latin Finance - September/October 2009 - 34
Latin Finance - September/October 2009 - 35
Latin Finance - September/October 2009 - 36
Latin Finance - September/October 2009 - Structured Finance Forecasts
Latin Finance - September/October 2009 - 38
Latin Finance - September/October 2009 - Grim Outlook. Reform Required
Latin Finance - September/October 2009 - 40
Latin Finance - September/October 2009 - 41
Latin Finance - September/October 2009 - 42
Latin Finance - September/October 2009 - 43
Latin Finance - September/October 2009 - 44
Latin Finance - September/October 2009 - Banorte Seeks to Grow
Latin Finance - September/October 2009 - Peru Spending Hits a Block
Latin Finance - September/October 2009 - 47
Latin Finance - September/October 2009 - 48
Latin Finance - September/October 2009 - 49
Latin Finance - September/October 2009 - BCP Sees Better Days
Latin Finance - September/October 2009 - 51
Latin Finance - September/October 2009 - 52
Latin Finance - September/October 2009 - 53
Latin Finance - September/October 2009 - 54
Latin Finance - September/October 2009 - Caribbean Investment Report
Latin Finance - September/October 2009 - 56
Latin Finance - September/October 2009 - 57
Latin Finance - September/October 2009 - 58
Latin Finance - September/October 2009 - 59
Latin Finance - September/October 2009 - 60
Latin Finance - September/October 2009 - 61
Latin Finance - September/October 2009 - 62
Latin Finance - September/October 2009 - 63
Latin Finance - September/October 2009 - 64
Latin Finance - September/October 2009 - 65
Latin Finance - September/October 2009 - 66
Latin Finance - September/October 2009 - Sustainable Banking
Latin Finance - September/October 2009 - 68
Latin Finance - September/October 2009 - Legal Services Survey
Latin Finance - September/October 2009 - 70
Latin Finance - September/October 2009 - 71
Latin Finance - September/October 2009 - 72
Latin Finance - September/October 2009 - 73
Latin Finance - September/October 2009 - 74
Latin Finance - September/October 2009 - 75
Latin Finance - September/October 2009 - 76
Latin Finance - September/October 2009 - 77
Latin Finance - September/October 2009 - 78
Latin Finance - September/October 2009 - Parting Shot
Latin Finance - September/October 2009 - 80
Latin Finance - September/October 2009 - Cover3
Latin Finance - September/October 2009 - Cover4
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