February 3, 2017 / 3:38 PM / 8 months ago

Brazil's Movida cuts IPO price floor to save deal: sources

SAO PAULO (Reuters) - Brazilian rental car firm Movida Participações SA has cut the bottom of a suggested price range for an initial public offering slated for Monday, a sign investors still have the upper hand in pricing new listings amid uncertainty over the government’s reform agenda.

According to five people with direct knowledge of the decision, Movida and bankers working on the IPO have notified potential bidders that the lowest end of the price range was reduced to 7.50 reais a share from the original 8.90 reais. The deadline for making firm bids on the deal is later on Friday.

One of the people, who requested anonymity since the deal is in the works, said demand for Movida’s shares is holding up satisfactorily at the new suggested price floor. Movida expected to raise as much as 1.184 billion reais ($378 million) with the deal.

But the change is a setback for Movida and its top shareholder, JSL SA (JSLG3.SA), which worked on the listing for months and had robust informal backing from investors lured by the rent-a-car firm’s rapid growth and aggressive taking of market share.

Still, sources told Reuters earlier this week that bids at the previous price floor would only cover a third of the offering.

“What happens is that we’re still at a time of uncertainty. Companies remain unable to get the prices they want, so institutional investors are taking advantage of this,” one of the people said.

The move also casts doubts on the ability of larger rival Unidas SA to complete its own Feb. 9 IPO, in which the company is seeking to fetch as much as 864 million reais.

Movida declined to comment, citing a quiet period related to the IPO.

CONFIDENCE

The competing IPO deals underscore the resilience of the car rental market in Brazil in the face of its harshest recession in eight decades, high unemployment and a slump in spending.

According to some of the people, JSL is counting on the IPO to cut debt taken to finance Movida’s expansion and allow the rent-a-car firm to pay for future investments.

The company said on Jan. 16 that the maximum end of the price range was 11.30 reais a share.

Brazilian President Michel Temer’s push of an ambitious fiscal reform agenda has helped reignite confidence in Latin America’s largest economy, allowing its currency to stabilize and the central bank to aggressively cut interest rates.

Temer replaced leftist Dilma Rousseff after her impeachment last year.

With the implementation of Temer’s agenda still in the early stages, investors want more signs of execution before taking on additional risk in the country.

Brazil's benchmark Bovespa stock index .BVSP has moved off of a five-year peak touched earlier this week, as some investors believe recent gains have been overdone.

($1 = 3.1303 reais)

Editing by Paul Simao

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