Magic tricks
Even as global equity investors fled Latin America, BTG Pactual managed to secure funding for small and large issuers across the region. The bank is IFR’s Latin America Equity House of the Year.
Latin America has long been viewed as a growth centre for ECM, fixated on fixed income for so long, the region is in its infancy in the development of ownership.
The growth spurt of recent years was stunted in 2022 by surging interest rates needed to combat high inflation, with commodity exposure leading to tightening sooner than other regions.
BTG Pactual managed to convince equity investors to commit capital despite the Brazilian central bank hiking lending to an eye-popping 13.75%, a dramatic increase from the 2% rate in early 2021 that had helped transition investors into equities. The benchmark Brazilian stock index, the Bovespa, rose 4.7% for the year but ECM issuance floundered.
There were no IPOs in Brazil in 2022 for the first time since 2003 when central bank lending rates spent most of the year above 20%. That is a dramatic reversal from 2021 when 46 Brazilian companies raised US$13.9bn through IPOs, the second highest by both number and volume.
BTG focused on banking larger, more established corporate clients. Barely a deal took place without BTG at the helm, with the bank a bookrunner on 22 out of the 28 LatAm follow-on offerings that raised US$12.7bn.
"We took a proactive approach advising clients of specific trends in the market that would allow them to get deals done," said Fabio Nazari, BTG’s global head of ECM.
There was no client more important than Brazilian state-owned utility Eletrobras, which facilitated its long-mooted privatisation via a R$33.7bn (US$6.9bn) follow-on in June.
Eletrobras and Brazil's development bank BNDES sold a combined 802m shares at R$42 each.
Eletrobras shares closed at R$42.60 on their trading debut on the B3 stock exchange, a balanced outcome for investors and the Brazilian government.
BTG was mandated as lead coordinator in a syndicate of one other domestic bank and two internationals. BTG created an electronic system to allocate the deal.
"We had to make sure the process for allocations was so clear because there was a fear of favouritism in how the allocations were made," said Robert Zweig, BTG’s head of equity syndicate.
Eletrobras used a similarly methodical approach in mandating the follow-on, scoring banks across a long list of criteria including prior ECM transactions completed, research coverage, distribution and lending capabilities.
Eletrobras, IFR’s Latin America Equity Issue of the Year, highlighted BTG’s international reach.
Another measure of the bank's international relevance was a joint bookrunner role on the US$1.7bn Hong Kong IPO of Chinese miner Tianqi Lithium in July.
BRF, the Brazilian meatpacker, fuelled its own international expansion by raising R$5.4bn from a follow-on in February, an all-primary offering used to repay debt and representing a 25% capital increase.
Highlighting the difficult funding environment early in the year, two companies opted to pull equity deals in February due to unfavourable market conditions.
In June, BTG responded to market volatility by agreeing to backstop a R$4.2bn rights offering for power producer Eneva. While the bank is a partial owner (and therefore defending its own investment), such capital commitments are rare in LatAm ECM.
"The company was concerned about market conditions and wanted to do a smaller financing," recalled Nazari. "We thought they needed more money to clean up their balance sheet."
Small clients matter
When the market for Brazilian IPOs began to close in late 2021, BTG responded with an innovative way for companies to go public without the regulatory oversight and market risk of a typical IPO.
The bank turned to Rule 476 placements as an exemption to registration requirements by Brazilian securities regulator CVM and in contrast to Rule 400 placements normally used to go public.
BR Advisory Partners, Tres Tentos Agroindustrial and Allied Tecnologia used the format in 2021, with BR returning to market in 2022 with a R$1.1m follow-on to satisfy B3 listing requirements. Livetech da Bahia Industria e Comercio showed the continued value of the format when it completed its IPO via BTG in January.
"This is something brand new in Brazil," said Nazari. "This is a concept that we invented. We did the million-dollar deals to ‘check the box’. We didn’t make any money on them."
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