Brazil Could See Fewer Stock Deals, But Bigger

Latin America’s main economy could see fewer – but larger – share offerings this year, as rising local interest rates and presidential election anxiety raise the attractiveness of large, liquid deals.

Brazilian stock sales raised a total of 155 billion reais ($ 27 billion) in 85 deals during 2021, just 2.5% below the record 159 billion reais raised in 2020, according to data compiled by Bloomberg.

The number of deals will decrease, but overall earnings could still be large, according to Gustavo Miranda, head of investment banking at Banco Santander SA’s Brazilian unit.

“The market will be quite selective, favoring larger agreements and well-known companies ”, Miranda told Bloomberg News. “Liquidity is key for investors to enter and exit positions when necessary, especially in a more volatile year”.

Less than a quarter of the 46 Brazilian listings on the local stock exchange last year raised more than 1.5 billion reais ($ 264 million), Bloomberg data shows. For secondary offers, the percentage was higher, around 50%.

For 2022, one of the most anticipated agreements is the sale of a stake in the petrochemical firm Braskem in the hands of its majority shareholders, Novonor SA and the state producer Petróleo Brasileiro SA, valued at US $ 1.5 billion.

Meat producer BRF is also planning a share sale, while the Brazilian government could launch a capital offer to privatize utility giant Eletrobras. These three agreements could represent up to 40,000 million reais, Miranda said.

Brazilian issuers will face challenges, such as the cycle of rate hikes from the central bank, which is increasing the attractiveness of fixed income products to locals while reducing appetite for stocks.

In addition, Brazil has presidential elections scheduled for October; Former left-wing president Luiz Inácio Lula da Silva leads opinion polls, while uncertainty persists regarding the country’s fiscal trajectory.

The country’s benchmark stock index, Ibovespa, has lagged its global peers in the past 12 months, down 19%. Extensive market weakness hit companies that went public last year, leading to lackluster returns for new IPOs.

Santander, which has about 50 people in its investment banking team in Brazil, is looking to expand especially on the technological and environmental, social and governance fronts, according to Miranda. It plans to hire outside the states of São Paulo and Rio de Janeiro, concentrating on peripheral areas of the nation, he said.