Bumpy ride
Latin America ECM proved a harbinger of an increasingly difficult funding backdrop, as central banks across the region moved to hike interest rates sooner and more dramatically than elsewhere. BTG Pactual navigated a tricky market environment by advising corporate clients to fund early in the year and is IFR’s Latin America Equity House of the Year.
The transformation of Brazilian equity capital markets has been nothing short of phenomenal with the rise of local investment supplanting the need to source capital internationally.4
Brazil saw 47 companies raise US$14bn through new domestic listings in 2021, up from 29 in 2020 and near the all-time high of 64 in 2007, with just five Brazilian companies opting to list on US stock exchanges.
“You still need international investors to participate in Brazilian IPOs, but a lot of those institutions have dedicated capital to the country,” said Enrique Corredor, BTG Pactual’s head of LatAm and international ECM. “We only focus on Latin America and we have never left the region, which is important to our dialogue with clients.”
The international and domestic reach is enhanced with Corredor based in New York and BTG's global head of ECM Fabio Nazari sitting in Sao Paolo.
Aberdeen Asset Management, now known as abrdn, and BNP Paribas Asset Management are among those that have increased resources in Brazil, joining earlier entrants like GSAM Brazil and Santander Asset Management, along with the emergence of local institutions such as Newfoundland Capital Management and Onyx Equity Management.
BTG dominated in the local markets as bookrunner on 30 of the 47 B3-listed IPOs for apportioned credit of US$1.4bn, a 10.2% market share by volume and tied for the highest by number with Itau. Its market share was even greater in follow-ons at 12.5% from 24 of 31 offerings, giving it US$1.5bn of apportioned credit.
BTG was global coordinator on the R$6.9bn (US$1.3bn) IPO in August of Raizen, a biofuels JV between Cosan and Shell, and earned an outsized share of base and incentive fees. Before launching publicly, the bank extensively pre-marketed to more than 300 institutions such that books opened with covered messaging. At allocations 60% of the deal was placed internationally and 85% with long-only investors.
The offering, the largest B3 listing of the year, validated BTG’s local market expertise for global clients.
Vinci Partners, a Brazilian alternative asset manager, relied on BTG’s local expertise by mandating the bank as one of three global coordinators on its US$250m Nasdaq IPO in January. Low interest rates and surging Brazilian stocks at the time provided a strong backdrop for alt-asset managers that allowed for pricing at US$18 on the 13.9m shares Vinci sold, the top of the US$16–$18 range.
Vinci was among the first Brazilian companies to market in 2021, Raizen was one of the last.
“When the markets ground to a halt in September, we had 30 companies queued up to go public,” said Robert Zweig, BTG’s head of equity syndicate. “We didn’t launch any of those deals.”
Brazilian stocks dropped 11.6% in September after the Brazilian central bank in August hiked lending rates by 100bp to 5.25%, having started 2021 at 2%. They were at 9.25% by December in an effort to tamp down inflation rates of 10.7%.
BTG had advised clients to list early in the year. The launch in January of BTG+, a digital banking arm targeting high-net-worth individuals that combined with lower-income clientele onboarded through the purchase in April of Banco Pan, proved a differentiator in winning and executing IPOs.
“The digital banking arm allowed access to retail that we didn’t really have before,” said Corredor. “Those retail investors were particularly important on tech IPOs.”
BTG sold stock twice itself in the year, a R$2.5bn offering in January and another R$3bn offering in June, to help recapitalise the business and fund acquisitions.
Brazilian e-commerce provider Mosaico’s R$1.2bn B3-listed IPO in February was a beneficiary of retail participation. BTG, as sole global coordinator, placed 61.3m shares at R$19.80, the top of the R$15.40–$19.80 range and including exercise of both the 15% greenshoe and 20% hot shoe (upsize) options.
BTG was able to achieve similarly impressive outcomes as global coordinator on the R$1.3bn B3-listed IPO of Intelbras Industrias, a maker of electronic surveillance equipment, and the R$1.1bn B3 IPO of mobile gaming developer Bemobi Mobile Tech. Both deals priced in February.
BTG’s present and future has to be juxtaposed against a past checkered by corruption charges levied against founder and former CEO Andre Esteves. While Esteves has since been exonerated and his ownership reinstated, the bank was largely prohibited from banking Brazilian state-owned enterprises.
“We lost customers, lost analysts and management. We had to rebuild our franchise,” conceded Corredor. “One thing that has helped keep us intact is that we are a partnership. It’s harder to jump ship when you have skin in the game.”
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