Market makers brace for year of elections as LatAm ECM pipeline grows

Market makers brace for year of elections as LatAm ECM pipeline grows

Capital Markets Equity IPO

Presidential elections are likely to shape this year's ECM market, with a number of issuers from Argentina, Peru and Brazil eyeing Q1 equity sales.

Brazil and Mexico go to the polls in October and July, respectively, while Colombia is also holding a vote in May.

Typically, market makers adopt a "wait and see" approach to equity issuance at times of elections. But in order to leverage sound market conditions, ECM sources are confident a large chunk of this year's pipeline will materialize in the first half of the year.

Argentina was last year's best performer, in terms of stock market gains, with its Merval index growing 77% year-on-year. IPOs from online travel site Despegar and cement company Loma Negra both priced at the top of suggested ranges in Q4 2017.

"From Argentina, there are a few deals we expect will launch imminently," one ECM banker said. Airport operator Corporacion America is being closely monitored by the market and is likely to launch this month, he added.

"At the back end of last year, there are still a lot of deals on file," a second banker said. Others from Argentina include power companies Central Puerto and Pampa Energia.

From Brazil, sporting goods chain Centauro and Blau Farmaceutica are next in line with IPOs of their own. Online payments processor PagSeguro Digital has also filed initial documentation, and the first banker expects this IPO to launch in January.

"[PagSeguro] is definitely on the radar," he said. "In the US we've seen the success with these online payment processors, so I think there will be appetite there for this kind of stock."

In addition to Despegar, Brazilian e-commerce retailer Netshoes also raised equity last year. Fund managers are looking to diversify their portfolios with tech stocks and LatAm offerings present a healthy return not typically available in developed markets.

For Brazil, investors are keeping their eyes on earnings growth and inflationary pressures in the buildup to this year's election. In Argentina, sources are hopeful of continued market-friendly policies, structural and fiscal reforms and a reclassification to emerging from frontier status by the MSCI.

Agribusiness Camposol, provides investors with necessary scarcity value in the region, a third source said. In the New Year, the buyside will be hopeful of a political resolution for Peru's President, PPK, a revamping of fiscal and monetary stimulus and infrastructure investments.

PPK's potential impeachment created some market jitters, but the company's planned IPO is on track, sources said.

"Camposol is a 100% exporter," the third banker said. "It is not that reliant on the domestic economy." Investors, however, still shriek at Peruvian risk and will want to see more stability throughout the year, he also said.

"The tone is good to start the year," he said. "But we are still relying on decisions for this first market window... It closes rapidly and Q3 numbers go stale on February 11."