2019 and IPOs in Brazil, what to expect?

By holding an IPO, companies raise a significant amount of funds to invest in their growth and expansion, and improve their capital costs, among others.

In Brazil, Banco Inter, NotreDame Intermédica and Hapvida raised R$650 million, R$2.4 billion and R$3 billion, respectively, in their IPOs in 2018.  Now, with lower interest rates and BNDES decreasing its share to finance large companies’ investments, what should we expect in 2019?

Currently, as pointed out in an event held by MZ last week about IPO perspectives, international investors are taking a closer look at Brazil. There is no euphoria or a wave of optimism as was the case in the past due to uncertainties over necessary structural reforms, but attention is turned to the country, and companies may benefit from this more favorable scenario.

As pointed out at the event, there has been an interesting rise in IPO and Follow On volumes raised since 2013 (over R$100 billion in the period), with Ibovespa moving up from 50,000 points at the end of 2013 to more than 87,000 in 2018, and foreign investors’ share reaching 51%. According to B3, the average funding cost is 4.5%, and 65% of the companies that held IPOs were Private Equity investees. Sinquia (former Sênior Solution) and Banco Inter were two successful cases. The companies prepared themselves for their IPOs and, since then, their value has increased by more than 100%.

But B3 listing is not the only option. As did PagSeguro and Stone, which raised US$2.3 billion and US$1.5 billion respectively, listing shares in the United States is an option for Brazilian companies that seek to increase liquidity and prospect new investors, either through dual listing or listing only on Nasdaq or NYSE rather than Brazil. (Netshoes has taken this same path). The advantages and facilities of this option for the U.S. market were addressed and explained to the participants during the event. The speakers also addressed the importance of implementing solid corporate governance and storytelling in the investment thesis.

At the panel’s final stage, which included Stone representatives, a company listed on Nasdaq in 2018, and OdontoPrev, which was listed on B3 in 2006, the participants were able to share a bit about their experience, alerting that investors and analysts will always want to learn more and that the company must take precautions in order not to try to please everybody by telling them something that might be considered inside information, and that both the Board and Management must constantly be informed of the market’s feedback, especially regarding negative aspects and perceptions, as they indicate the IR program’s weaknesses that need close attention and further improvements.

Originally published by Marco Antônio Tomás