Brazil braced for IPO spree this year after bumper 2020

Brazil’s stock market is gearing up for another rush of flotations in 2021, after an army of new investors helped spur the strongest year for initial public offerings in more than a decade.

An iron ore miner, a crematorium operator and an online furniture seller are among a list of 41 companies that have announced their intention to debut on São Paulo’s B3 exchange, which in spite of the Covid-19 pandemic chalked up 28 IPOs last year — the biggest number since 2007’s all-time record of 64.

“It could turn out to be more active than 2020,” said Roderick Greenlees, global head of investment banking at Itaú BBA. He expects between 30 to 40 listings this year, as part of a wider rush for equity capital markets deals that he says is “potentially our biggest pipeline ever”.

Overall, companies that went public on B3 last year reaped R$43.7bn ($8.3bn), more than four times the previous annual figure, according to exchange data. Taken together with follow-on share issuances, the total amount of equity raised exceeded R$100bn for the first time in 10 years. Globally, IPO proceeds were up by about a quarter, according to data from Refinitiv. 

The share-sale bonanza is predicted to continue despite the economic disruption caused by Covid-19 to Latin America’s largest economy. The country is in the throes of a second wave of the virus, but vaccines are finally being rolled out after delays.

One factor behind the boom in businesses tapping the bourse are Brazil’s historically low interest rates, which have pushed savers out of deposit accounts and into stocks and riskier assets in the hope of higher returns. 

The number of retail investors on the B3 stock exchange almost doubled to 3.2m in 2020, reflecting a wider global trend of everyday people playing the market.

Rogério Santana, head of client relationships at B3, said this was distinct from previous capital market cycles in the country and coincided with enterprises looking to diversify their sources of funding. “A larger presence of local investors brings more solidity and consistency” to the Brazilian stock market, he added. 

Foreign investors have also rushed to buy Brazilian stocks, as shown by strong inflows of foreign capital in the past couple of months, cited by Bank of America analysts. This has been encouraged by a weakened exchange rate making assets in the country cheaper: the real fell more than 20 per cent against the dollar last year. 

Although the benchmark Bovespa index recovered from the market crisis of last March to finish 2020 slightly up, in local currency terms, it was lower in dollar terms. And analysts are sanguine on market valuations, despite the investor fervour.

“Today the [valuation] multiples in Brazil are not dislocated from the historic average, so I don’t think there’s any bubble,” said Tiago Reis, founder of Suno Research. 

Transactions in the pipeline include steelmaker CSN’s iron ore unit and Tok & Stok, a furniture chain backed by private equity group Carlyle. 

Pablo Riveroll, head of Latin American equities at London-based asset manager Schroders, said Brazilian businesses in the “new economy” were proving particularly attractive to overseas investors.

“There’s been a group of companies that are within the technology, IT and fintech space that have received a huge amount of interest from foreigners, and so have companies associated with renewable energy.”