Latin Finance - May/June 2010 - 2

Front Notes

Land of Hope and Fear
he looming gulf between what Brazilian companies think their equity is worth and where investors will buy highlights a glaring dislocation in LatAm primary equity. Trust has been broken by a greedy few, but in the end, all market participants stand to lose. How come most IPOs fail to hit the price range indicated in initial marketing, often by an embarrassingly wide margin? And why do bankers claim it is impossible to judge in advance what kind of discount investors want? The answer lies somewhere between greed and fear, with the buyside, underwriters and issuers divided between the extremes. Issuers exude greed in their enduring belief that all the hype about Brazil’s future is true and should be in the price right now. Bankers compound the avarice by failing to confront clients with the harsh truth, often in fear of losing mandates to a less scrupulous competitor. Fear emanates from investors who were sold a lot of hot air in 2007 and continue to pay for it now. The buyside also frets over liquidity, Brazilian presidential elections, rate hikes and an increasingly heavy supply pipeline, particularly from the public sector. Somewhere in the middle cowers the investment banker, who privately admits he is getting it wrong, but hopes that the cash-rich buyside will eventually come around. However, equity investors are not a stupid as some believe. They are actually helping slap some much needed sense into the market. Interestingly, one of the intermediaries most keen to make a splash in LatAm ECM – Santander – may have started the rot last year with the IPO of its own Brazil unit. The issue raised a headline grabbing 14 billion reais but traded off 3.7% in its inaugural session and has remained weak for most of its public life. Having such a large and high profile deal injure investors causes a break in credibility, senior equity bankers admit privately. Compared to DCM, ECM looks like a mess. If the debt guy can tell you within a few basis points what your credit is worth, why can’t the equity banker say how much you’ll get on the stock? And if they can’t give a CEO a good estimate of what his company is worth to investors, why pay millions of dollars in commission for the advice? In these days of abundant technology and swift communications, what’s to stop potential equity issuers going straight to the most obvious anchor orders? Both sides would benefit from a frank and unfiltered dialogue. Do issuers really need someone to build a bridge for them to investors? Time to drop the middleman, anyone?

EDITOR James Crombie SENIOR REPORTER Ben Miller REPORTER Taína Rosa CONTRIBUTORS Nacha Cattan, Lucien Chauvin, John Rumsey ART DIRECTOR Rosa Matamoros-Sense COVER ILLUSTRATION Dean MacAdam COMMERCIAL DIRECTOR James Norton DIRECTOR OF BUSINESS DEVELOPMENT Teresa Aguilar REGIONAL DIRECTOR, BRAZIL J. Albert Negrón SENIOR MANAGER, MEXICO, CARIBBEAN, SOUTHERN CONE Arielle Schrader MANAGER, CENTRAL AMERICA, BOLIVIA & ECUADOR Isabella Toro VENEZUELA REPRESENTATIVE Matthew Perks T +1 718 260-8970 SENIOR EVENTS MANAGER Omar Suarez EDITORIAL DIRECTOR, CONFERENCES & SPECIAL PROJECTS Michael Brosgart EVENTS PROGRAMMER Cate Doyle EVENTS MARKETING MANAGER Alex Rubin EVENTS MARKETING Audrey Cechinel GROUP MARKETING MANAGER Louis Cassetta MARKETING MANAGER Hilary Neil CIRCULATION MARKETING MANAGER Patricia Arcic OFFICE MANAGER Teresa Romero ASSISTANT TO THE CEO Vicky Maqueira NETWORK ADMINISTRATOR Lukasz Przybyl LATINFINANCE BOARD OF DIRECTORS PRESIDENT Christopher Garnett DIRECTORS Stuart Allen, James Crombie, Colin Jones, Giuliana Moreyra CHIEF EXECUTIVE OFFICER & PUBLISHER Stuart Allen CHIEF OPERATING OFFICER Giuliana Moreyra

Argentine Mist
Argentine government officials are keen to spin their latest overture to holdouts as the end of a long and dark chapter. It is the start of access to abundant international capital markets after a decade-long freeze and a chance to rebuild the sovereign’s reputation on the world stage, according to the puff. For those so-called vultures who bought the dips post workout in 2005, the new offer seems quite attractive. However, pensioners still hoping to salvage more than a third of their savings after a 10 year wait will view the deal as a lot worse. Retail holders of Argentine debt untendered in the 2005 exchange estimate recovery from last month’s offer at 54 cents, versus 67 cents in 2005. Since it went bust in 2001, Argentina has never negotiated in good faith with bondholders. Government officials continue to patronize and insult smaller investors, telling them they probably should not have bought bonds in the first place. Retail has tried several times in the past to unite to force better terms from the sovereign. However, Argentina has repeatedly refused to negotiate with such groups, claiming that they are unable to talk for all holders. But retail is again organizing to get a stronger voice at the negotiating table, and with potentially half the debt outstanding, it represents a huge swing vote that can easily sink the new exchange. Retail will pursue class action suits to get what it wants if the delinquent sovereign does not listen. LF

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2 L ATIN F INANCE May/June 2010

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Latin Finance - May/June 2010

Table of Contents for the Digital Edition of Latin Finance - May/June 2010