SAO PAULO (Reuters) - Brazilian stock offerings may more than double in value this year from a bumper 2019, with the country’s lowest interest rates on record seen fueling optimism and leading more companies to test the markets, bankers say.
Despite a history of market volatility over the past decade, many are hoping that a less interventionist government under conservative President Jair Bolsonaro could give the current boom staying power.
“Brazilian capital markets have entered a long-term growth cycle that may last years,” said Fabio Nazari, head of equity capital markets at Banco BTG Pactual SA.
After more than tripling last year, share offerings activity tmsnrt.rs/2FO3yk9 is expected to accelerate, with some bankers predicting that offerings may reach up to 200 billion reais ($48 billion).
Brazilian stock sales were equivalent to 85% of all equity activity in Latin America in 2019, while Brazil’s gross domestic product is only about a third of the wider region’s.
Privatizations or government stake divestitures, particularly of units previously owned by state-controlled oil company Petroleo Brasileiro SA (PETR4.SA), helped fuel the growth.
Fuel distributor Petrobras Distribuidora SA (BRDT3.SA) was privatized through a $2.5 billion share offering. In the year’s largest M&A deal, Petrobras sold gas pipeline company TAG to France’s Engie SA (ENGIE.PA) for $8.6 billion.
State divestitures will again dominate the markets this year, as development bank BNDES plans to sell up to 120 billion reais in shares it owns in listed companies such as meatpacker JBS SA (JBSS3.SA), Petrobras and Banco do Brasil SA (BBAS3.SA).
Most of last year’s 56 share offerings came from already-listed companies, with only seven initial public offerings among the transactions. This year may see up to 20 IPOs, said Roderick Greenlees, head of investment banking at Itau Unibanco Holding SA.
Some long-dormant industries such as homebuilding are coming back to the market, said Eddy Allegaert, head of equity capital markets for Latin America at JPMorgan & Chase. Two property developers, Mitre and Moura Dubeux, have filed for IPOs so far.
Morgan Stanley managing director Eduardo Mendez expects IPO candidates to include fintechs as well as consumer products and retail companies.
Brazil is expected to remain the region’s largest source of equity issues during the year, but Allegaert also expects some equity deals in Mexico. The outlook is more difficult in Argentina, where a sharp left turn politically and debt default worries have spooked investors.
Bankers expect a more moderate increase in M&A activity, including an expected multibillion-dollar sale of Petrobras refineries, the long-awaited privatization of power holding company Centrais Eletricas Brasileiras SA (ELET6.SA) and some divestitures by Banco do Brasil.
Cash-starved regional water and sanitation providers like Sabesp (SBSP3.SA), which the state of Sao Paulo has pledged to privatize, could be another source of growth.
“Water and sanitation will require a massive amount of investments, similar to what the power industry has attracted over the last 20 years, since the first privatizations,” said Eduardo Miras, Brazil head of investment banking at Citi.
Andres Sommer, head of M&A for South America at Morgan Stanley, also expects large deals in the power industry, while Ricardo Lacerda, founding partner of BR Partners, sees more activity in infrastructure, retail and consumer industries.
As companies raise cash in capital markets and the economy recovers, private M&A is expected to pick up, too, with foreign investors accounting for part of the demand.
“There’s a perception that Brazil’s economic recovery is solid, which is boosting foreign investors’ interest in acquiring companies there,” said Renato Boranga, head of mergers and acquisitions at Banco Santander Brasil SA.
Reporting by Tatiana Bautzer and Carolina Mandl; Editing by Christian Plumb and Leslie Adler