LatAm ECM proves a tale of three

LatAm ECM proves a tale of three

Equity Capital Markets Argentina Brazil Mexico

September and October delivered the long-awaited goods that many promised of LatAm equities, but investor fatigue hurt some companies' ECM ambitions.

At least 15 transactions crossed the tape over the last two months throughout Latin America and Argentine, Brazilian and Mexican names all took top billing.

"It was basically dictated by three markets with their own story," one ECM banker told LatinFinance.

In Mexico, ECM sources are convinced next year’s presidential election will cause a stir in the markets and are guiding clients to look at stock sales in the immediate-term. From a buyside perspective, investors have started pricing in risks typically attached with any general election.

"I would not call it impending doom, but the two things weighing down Mexico right now is the uncertainty about NAFTA and next year’s election," a second ECM banker says.

Grupo Mexico Transportes will look to the ECM space to continue the capital markets spree the railroad operator has been on this year. After getting a $1.55bn bridge loan and a MXN10bn ($522m) local bond, GMexico Transportes could raise roughly $1bn in an IPO.

For Brazil, investors remain bullish on President Michel Temer’s proposed economic and pension reform and continue to overweigh their Brazil-dedicated funds.

Throughout the latest window, Azul and Rumo both priced follow-ons, while food company Camil and utility Eneva completed an IPO and re-IPO, respectively. And most recently, Vulcabras Azaleia and Nexa Resources both reached terms on their own spin offs.

Algar Telecom and Burger King Brasil have both filed initial documentation for share sales of their own, with sources expecting these IPOs to hit screens in December.

"You have got reforms in their preliminary stages," the second banker says of Brazil. "So ideally, you want to get these deals done before volatility sets in."

Brazil's financial markets have come under duress in the past week after a split vote in President Michel Temer's ruling coalition cast doubt over important parts of his reform agenda. The Brazilian B3 stock exchange experienced a sell off last week following a vote in the lower house of Congress on whether to charge Temer for corruption.

Temer passed the test, but the narrow margin by which he survived suggested he lost some of his Congressional support, a report from Capital Economics showed.

"Policy measures that require a simple majority in Congress [Such as banking reform or privatizing state assets] are likely to proceed," the report said. But those in need of constitutional amendment need to pass a higher level of Congress.

Sources have since said that Brazilian companies still set on going public, or selling more equity, need to act quickly in this window, in the event of political volatility in 2018.

Argentina's Loma Negra seemed to have most ECM bankers jumping out of their seats. The cement company remains on track to do its IPO at the end of this month and leads have piled up a generous amount of orders so far, LatinFinance  understands.

"In Loma, this is a market with little exposure, but Macri’s results in the mid-terms drove up the Merval and the story is selling," the second banker adds.

Another banker even suggested the Loma deal was one of the "easier" ones to work on due to heavy levels of reverse inquiries.

Not all the last two months proved smooth, however, with some sources concerned over "investor fatigue." 

Potential IPOs from Mexican food company Sigma Alimentos and Brazilian IT services firm Tivit were both canceled.

The sheer number of transactions throughout the two-month window may have dipped too far down into investor pockets, sources say.

As a result, some companies that wanted to go public may not have been pleased with perceived valuations.

"Latin America is a region where access is limited and if you have a rush to market, like September, it can be too much at once," the first source says.

Nonetheless, it has been a record year for LatAm ECM, and it would seem that November promises to be another bumper month for the asset class.