Just a few weeks ago, 2020 was shaping up to be a banner year for Brazilian initial public offerings. But with fears over the novel coronavirus battering markets across the globe, many of those planned offerings could be delayed or cancelled.
Buoyed by a strong market run up, as well as by XP Inc.’s successful U.S. debut in December 2019, more than a dozen Brazil-based companies announced plans to go public in the first few months of 2020, while several more said they were contemplating such a move. All told, market observers had forecast that the country could see 30 IPOs or more on the Brazilian market this year, sharply higher than the five IPOs completed in 2019.
But in recent days, Brazilian markets, like many across the globe, have crumbled. The benchmark IBOVESPA Index has lost nearly 20% since the start of March, while XP lost 30% of its value over the course of a week and closed the March 9 trading session below its $27 IPO price for the first time.
As result, “things that may have been planned two weeks ago are not going to get done for a while now,” Robert Stoll, a director with Fitch Ratings, said in an interview.
Caixa Seguridade Participações SA, the insurance arm of state-owned Caixa Econômica Federal, on March 9 reportedly decided to postpone its April IPO by three to six months. The listing was expected to be among the year’s largest, worth an estimated 15 billion reais. Banco Daycoval SA, which was eyeing a $1 billion IPO in the coming weeks, is close to canceling its own planned listing, according to a Reuters report. Analysts expect Banco Votorantim SA to make a similar move.
“Market shock will probably postpone most IPOs, unless the crisis subsides relatively quickly and there is decisive coordinated action by central banks to restore liquidity,” Pedro Kassab, an investment banking director with Banco Fator, said. “It’s still very volatile.”
Volatility in the Brazilian stock market, as measured by the CBOE Index, surged by 107.9% between the final week of February and March 9 amid rising concerns over the impact the coronavirus could have on global economies. The index is now sitting at levels similar to those seen head of Brazil’s 2018 presidential elections.
“This kind of volatility tends to lead issuers to rethink their issuance calendar,” Carlos Macedo, a former equity analyst with Goldman Sachs, said in an emailed statement. All told, 16 companies were expected to complete their initial offerings during the month of April. It is unclear how many may simply delay their plans for a few months and how many may cancel them altogether.
Caixa Seguridade’s planned listing is unique in that the move is meant to help fulfill a government promise to shrink state involvement in various industries. For medium-sized banks and many others planning IPOs, however, the main objective is raising capital.
Together, Banco Daycoval, Paraná Banco SA and Banco Votorantim were planning to raise as much as 10 billion reais in their public offerings, according to market estimates collected by S&P Global Market Intelligence. For both Daycoval and Paraná, the listings would mark a return to public markets after both privatized years earlier amid Brazil’s prolong economic recession.
“We will see some delays in this process,” Jean Lopes, a bank director with Fitch Ratings, said. “Financial institutions should wait for the market to calm down.”
As of March 9, US$1 was equivalent to 4.74 Brazilian reais.
