Competition, pandemic and industry demand are common challenges for companies planning IPOs (initial public offerings), but Brazilian companies have begun to signal a new risk: the political confusion caused by President Jair Bolsonaro.
The Brazilian units of cosmetics maker Coty and retailer Cencosud have included the risk of a presidential impeachment in their prospects for recent stock offerings, while Solar Bebidas – distributor of Coca-Cola Co – warned of turmoil that could lead to presidential elections in 2022.
Bolsonaro’s recent confrontation with the STF (Supreme Federal Court) raises fears about the completion of reforms in the country and threatens the viability of some 25 IPOs that are in the oven.
Added to the 44 IPOs completed this year so far, they would break the 2007 Brazilian IPO record.
Last week, Bolsonaro eased the dispute with the STF, but investors, analysts and investment bank executives still question how long the truce will be.
The Ibovespa has accumulated a drop of around 1.5% this year, one of the five global indexes in negative territory in 2021.
“The outlook for IPOs is more challenging. A potential institutional crisis could reduce the chances of passing the reforms needed to boost economic growth,” said Gustavo Miranda, head of investment banking at Santander Brasil.
Even before the pro-Bolsonaro demonstrations on Sept. 7, IPOs faced a tougher time amid sluggish economic growth, high unemployment and a severe drought that puts pressure on food and energy prices.
Cement maker Intercement Brasil, for example, decided to cancel a stock offering in July as investors demanded lower valuations, while aluminum producer Companhia Brasileira de Alumínio and other companies had to reduce the share price to make it viable. the IPO.
“We have been advising companies planning an IPO to be ready if things change in the coming weeks,” said Roderick Greenlees, head of investment banking at Itaú BBA, ruling out a complete closing of markets for equity offerings.
So far this month, the only two companies that have put IPOs on the street are gym chain BlueFit and pharmaceutical company Althaia, both scheduled for pricing next week.
The poor performance of recent IPOs is also dampening investor appetite for new deals, said Marcelo Millen, head of Citigroup’s equity markets equity area in Brazil.
Almost half of the companies listed in the last two months are trading below their IPO prices.
Asset managers, facing a shortage of new money to invest in additional stocks, have become especially demanding now. Equity and multimarket funds had net outflows in September, although most still show inflows for the year.
“We are looking at new IPOs with a magnifying glass because we expect more volatility as the 2022 elections approach,” said Sara Delfim, partner at manager Dahlia Capital, adding that some sectors may be able to move out of the turmoil.
Brazilian companies considering IPOs in the US, such as fintech Nubank, payments company Conductor and Hotmart, a platform for content creators, can resist the volatility of elections, as their growth depends less on the macroeconomic environment.
* With the collaboration of Tatiana Bautzer and Paula Arend Laier