Recent years have been challenging for new equity
issuance and 2012 was no exception: volumes and the number of
transactions hit a trough while Brazilian markets all but
ground to a halt.
The upside is that a diminished focus on Brazilian issuance
has meant a more intense interest in Mexico, Peru, Colombia and
Chile. Even Brazilian banks are pushing hard to get in on the
Several banks are poised to benefit from the emergence of
the ex-Brazil markets, having laid the groundwork in recent
years. Bank of America Merrill Lynch stands out among the elite
group of ECM firms with a pan-regional operation, working on
several of the largest and most groundbreaking transactions
(and generally earning a high fee on the deals).
This is not to say that opening up markets outside Brazil
has been easy. Market capitalizations and eligible issuers are
still a fraction of what they are in Brazil - which may yet see
a rebound in 2013.
While investors want geographic diversity, for BAML and many
other bankers, the quality of the issuer is the most important
"This has been an unprecedented year for Latin America,"
says Facundo Vazquez, head of LatAm ECM at BAML. He says that
while overall volume is way down, the ex-Brazil focus is
greater than ever before. "It works for the right names with
the right profile, at the right price," he says.
Last year was one for strong issuers. BAML was one of four
global coordinators on the groundbreaking IPO for Santander
Mexico in September. The 52.81 billion peso ($4.11 billion)
deal is the biggest in the region and Mexico's largest ever
The shares had traded up 21.5% as of December 1, and may do
much to open up the market for further Mexican issuance. In the
months following the deal, transactions from Mexichem, Pinfra
and others followed, including some in the new Fibra real
estate fund asset class.
In Chile, BAML helped put together another piece of
Santander's regional fundraising puzzle. Santander Chile
attracted more than two times demand for a $949
million-equivalent all-secondary follow-on. About 70% of the
buyers were international - this is much higher than the
one-third foreign participation normally seen in such Chilean
Strong international reception also drove Chile's
largest-ever IPO in July, when Inversiones La
Construcción raised $469 million-equivalent. Explaining
the makeup of the complicated holdco for various investments of
the Cámara Chilena de la Construcción was not an
easy task. ILC owns health insurance firms including AFP
Habitat and Consalud and also the Tabancura and Avansalud
In the end demand reached about 2.5 times, with
international buyers accounting for 35%. Proceeds from the
sale, managed by BAML, IMTrust and JPMorgan, funds the health
care operations and also be used for expansion.
Bancolombia opened the market in January, raising more than
$900 million-equivalent through international and domestic
tranches of a follow-on sale. BAML led the deal with UBS,
JPMorgan and Bancolombia.
The only major market BAML missed was Peru, which offered
only the Pacasmayo follow-on during the awards period. All
signs point to increased activity in Peru in 2013, particularly
after a successful IPO of Intercorp's retail operations in
This was not Brazil's year in ECM, but BAML was present on
some the country's most successful operations, though the BTG
Pactual IPO was the bank's one noticeable absence in the
Its work in Brazil included the 1.76 billion real ($876
million) follow-on deal for Taesa. The transmission company's
"re-IPO" received close to five times demand, drawing investors
with high dividend yields and convincing them to ignore the
illiquid shares' trading levels and pay within the pre-set
price range. BAML managed the deal with BTG, Banco do Brasil,
Goldman Sachs and Santander.
"For brand names and established companies issuing in size
from Brazil there is a lot of demand," Vazquez says. "Brazil
works for the right companies, and they are achieving very
Follow-ons including Fibria and Qualicorp also performed
well in what was otherwise a difficult year.
Vazquez and other ECM bankers are hopeful for a pickup in
volume in 2013. Sticking to top-quality well known names
offering liquidity will be the key. This may seem like an
obvious strategy, but it has eluded Brazilian issuers in the
last few years as foreign investor have stayed
Shifting perceptions of valuations - the decline in the
Bovespa and the greater attention paid to Mexico and the Andes
means Brazil is starting to look cheap - will help Brazilian
issuers going forward.
While the increased interest in diversification can't be
ignored, an issuer's quality is more important than the
"Brazil versus ex-Brazil is a misconception," Vazquez says.
"Investors have changed. They are no longer willing to pay for
a small-size company with a lack of cash flow and high
execution risk. If you put such a company in Mexico it will
fail, or in Brazil, Peru or another country, it will also fail.
The market in general is saying it doesn't want those types of
companies for a while."LF