April 9, 2013 10:24 pm

Brazil group eyes IPO despite poor market

Brazilian cement group Votorantim Cimentos has become the latest to join a queue of companies looking to launch initial public offerings in spite of a poorly performing market.

The cement company, part of the Votorantim conglomerate, is planning to raise more than $1bn from a dual listing in Brazil and New York, according to a person familiar with the matter.

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The offering proposal, which has been filed with CVM, Brazil’s market regulator, follows an announcement by state-controlled Banco do Brasil that it is planning a R$12bn listing of its insurance arm and by airline Gol that it will list its air miles unit.

“These offerings are more to test the market,” said Pedro Galdi, chief strategist at SLW Corretora, a broker in São Paulo.

Brazilian companies are increasingly eager to raise equity capital after a long hiatus in the market for IPOs that has forced most of them to raise debt instead.

Dealogic reported that Brazilian groups raised $3bn in the first quarter of this year from equity issues, up tenfold from a year earlier but still below levels in 2011 and 2010.

Only one of these, a $265m offering by Linx, was an IPO, according to Dealogic.

The benchmark Bovespa index is down 7.85 per cent in the year to date as falls in shares of companies owned by Eike Batista, the Brazilian oil and energy billionaire, have weighed on sentiment.

In spite of the bearishness, more companies are deciding to brave the fitful market and issue shares to shore up their equity positions.

Although the quantity and price of the shares for the Votorantim Cimentos offer have yet to be disclosed, a person familiar with the IPO said the company expected to raise more than $1bn.

“The interesting thing here is that the company has never been identified for having this kind of size and scale,” this person said. “The type of implied valuation makes this one of the largest companies in Brazil.”

The offering is likely to consist of 75 per cent newly issued shares and 25 per cent secondary shares from existing stakeholders.

Brazilian banks BTG Pactual and Itau are underwriting the offering as well as Credit Suisse, Morgan Stanley and JPMorgan Chase.

Aside from the Votorantim offering, the market will be watching to see if heavyweight Banco do Brasil can get the offering of its insurance arm, BB Seguridade Participações, off the ground.

The sale by Gol Linhas Aéreas Inteligentes of its Smiles frequent flyer unit, which is expected to generate up to R$1.35bn in capital for the struggling company, will also be on investors’ radar.

Gol has recruited private equity firm General Atlantic to buy into the offering in a move that should insulate it against some of the negative market sentiment.

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