NEW YORK (IFR) - Brazilian companies are taking a wait-and-see approach ahead of equity sales next week, as the country's risk assets recover a touch after Thursday's dramatic sell-off.
Mall operator BR Malls and education group Ser Educacional are set to price follow-ons next week, but much will depend on how the hush-money scandal involving the president evolves over the next 48 hours.
"Let's see what happens over the weekend," said one banker, who said that next week's issues would be contingent upon any further revelations.
For now Ser Educacional is still moving forward with its 100% primary follow-on, with roadshows scheduled in New York and Boston ahead of expected pricing on May 24.
Its stock price had recovered to around R$22.53 (US$6.92) by early afternoon after falling to R$21.97 from R$25.63 earlier in the week.
It was a similar story for BR Malls, which is looking to raise about US$536m on Monday through a follow-on, with its stock price quoted at R$11.85 off Thursday's low around R$10.88.
The Brazilian Bovespa index fell as much as 10.69% on Thursday but clawed back some ground in Friday's session.
"Today we are seeing lower volatility and some stability," a second banker told IFR on Friday. "We are seeing hedges, but no long money is selling down."
President Michel Temer has refused to step down after allegedly being caught on tape discussing payments to hush the country's jailed former house speaker.
And that has raised market questions about the long-term prospects for his government's ambitious reform agenda.
"The main issue is making sure the pension reform doesn't get affected," the banker said.
"People had been hoping for a quick fix and that the president would step down, but it sounds like it may take longer."
Brazil has been a principal driver of a revival in Latin American equity markets this year, and its companies make up the majority of what one banker calculates to be a US$3.5bn pipeline.
The uncertainty created by the new twist to the country's ongoing corruption scandal is likely to put many of these deals on hold.
"The pipeline is big, but my assumption is that a lot of this pipeline will be delayed," said the first banker.
Issuers are up against the clock, as first-quarter numbers will start growing stale in the second week of July, meaning they will have to wait to freshen financials if they can't issue during the next few months.
"It's a shame," said a third banker. "The markets were just getting back on their legs. There were a number of transactions that were contemplated for the next 10 weeks."
But bankers still hold out hope that deals elsewhere in the region will go through.
Mexico's Banco Bajio is expected to launch its initial public offering on Monday as it looks to raise approximately US$450m, with roadshows scheduled over the next couple of weeks.
"It is noisy and investors are focused on Brazil, but we don't believe this will affect the Banco Bajio issue," said the first banker.
Reporting by Paul Kilby; Editing by Marc Carnegie