LatinFinance - January/February 2014 - 43

INITIAL PUBLIC OFFERING

BB Seguridade's $5.7bn IPO
Banco do Brasil showed how a big IPO can get done at a
high price amid a volatile market backdrop, opening a
new sector for Brazilian equity investors in the process
In 2013, Latin companies preparing to list
frequently found their views on valuation
were not shared by equity investors.
Yet large deals for recognizable names
were nevertheless most likely to price at a
level that satisfied both sides.
The $5.74 billion IPO of Banco do Brasil's
BB Seguridade insurance business in April
met these requirements - and opened up
a new industry for investors in Brazilian
equity.
Brazil's economy lost its shine some time
ago, but the ranks of the country's middle
class are still expanding. Insurance is one
of the extras they can now afford, offering
scope for the industry to grow. Insurance
penetration in Brazil, at 1.7%, is well below
developed markets. Premiums sold in
Brazil rose 13.4% from 2011 to 2012, Banco
do Brasil says.
Bancassurance has been growing faster
in the post-crisis years than products sold
by independent insurers. The model takes
advantage of bank branches as sales and
distribution points to capture existing
customers, and has proven successful for
the state-controlled lender and competitors
such as Itaú and Bradesco.
The listing of BB Seguridade - seen
internally at Banco do Brasil as one of its
most important business units - was led by
a wish to maximize returns for the bank's
shareholders, says Leonardo Mattedi, BB
Seguridade's chief financial officer.
The size and stature of Brazil's largest
bank, and high profitability in an
underpenetrated sector, helped the deal
to market. Still, there were forces working
against the issuer: a souring international
attitude toward Brazil, and valuation
disagreements that have plagued Brazilian
IPOs even in better times.
Regulatory risk and government
control were also potential flags for
investors considering the all-secondary
share transaction - although Mattedi says
the insurer's cash flow and capital are
strong, removing any need to raise equity.

Marketing the deal took over a month, with
three teams visiting four continents. Lead
managers say 62% of the investors visited
participated in the deal, above a typical
40% to 50% level. The deal was one of the
few IPOs to price in the upper portion of
its price range - in this case, of 15 to 18 reais
per share.
"We felt that the transaction could be
priced at 16.5 reais, the midpoint of the
range, or higher, ideally 17 reais," says
Daniel Darahem, head of LatAm ECM at
JPMorgan, a lead manager along with BTG
Pactual, Banco do Brasil, Bradesco, Citi and
Itaú.
More than $15 billion equivalent in
demand allowed for full overallotment
options, including a rare use of the hot
issue option, bringing the deal to 11.48
billion reais. It was the largest listing in
Latin America in almost four years, and the
world's biggest in 2013 as of mid-November,
according to Dealogic.
"We found a unique window of market
conditions in the first half of 2013, ahead
of a deterioration in market conditions,"
Mattedi says. "The timing was perfect."
The stock traded down in its first day,

LEONARDO MATTEDI, BB SEGURIDADE

"WE FOUND A UNIQUE
WINDOW IN THE FIRST
HALF OF 2013, AHEAD
OF A DETERIORATION
IN MARKET CONDITIONS. THE TIMING
WAS PERFECT"

but the lead managers stabilized the price
by buying the greenshoe. The shares
had traded up 41.9% by late November.
"We were active on stabilization on the
first day, which is rare on a transaction
of this size, and were able to stabilize the
stock above the issue price in two trading
days," Darahem says. The size of the deal,
smoothly executed against a deteriorating
market backdrop in April, gives BB
Seguridade's IPO the edge over other
notable listings: IEnova, the best out of
Mexico, and Brazilian small-cap star Linx.
It also showed the pull of Brazilian
stocks, despite the country's woes:
investors outside Brazil bought 66% of the
deal, well above the 50%-plus rate typical of
a non-SEC registered Brazilian transaction,
say the managing bankers. US investors
led the way with 45%, with 16% going to
Europeans. Long-only accounts bought
65%.
"You don't necessarily need to hit the US
market to have the proper depth in terms of
investors' appetite. Brazil is mature enough
to support this type of deal size," says Fábio
Nazari, head of ECM at BTG Pactual. LF

EQUITY FOLLOW-ON
               

Enersis $6 bn
equity raise
The Chilean power company overcame disagreement
with pension funds and a
skeptical market to raise
funds for expansion and
streamline a complicated
group structure

When Italy's largest power company, Enel,
and its Spanish subsidiary Endesa, looked
for global growth opportunities, Latin
America's demographics made the region
a frontrunner. Their plan to achieve this
growth involved raising capital through
a local Latin American subsidiary. The
move offered a double benefit: bringing in
expansion cash and a chance to streamline
a tangled corporate structure that was a
result of years of acquisitions.
Endesa, with assets scattered across
five Latin American countries, chose

January/February 2014 - L ATINFINA NCE.COM 43


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LatinFinance - January/February 2014

Table of Contents for the Digital Edition of LatinFinance - January/February 2014

Contents
LatinFinance - January/February 2014 - Cover1
LatinFinance - January/February 2014 - Cover2
LatinFinance - January/February 2014 - Contents
LatinFinance - January/February 2014 - 2
LatinFinance - January/February 2014 - 3
LatinFinance - January/February 2014 - 4
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