IPO of the Year - Carrefour Brasil
January 17, 2018 | Aaron Weinman
A return to form in Latin American equities saw this global retailer leverage good conditions to price the largest Brazilian IPO in four years
IPO Equity Brazil
After three quiet years, Brazil's equity capital markets underwent a long-awaited turnaround. More Brazilian companies completed IPOs in 2017 than the last three years combined.
And French retailer Carrefour saw 2017 as an opportunity to take its Brazilian subsidiary public.
Carrefour Brasil leveraged market conditions and an improving economy to raise roughly 4.9 billion reais ($1.5 billion) in its IPO. Not only was it the largest Brazilian IPO in the last four years, Carrefour Brasil is now the largest Brazilian-listed retailer.
It raised more equity capital than Azul and avoided the regulatory scrutiny that delayed the Brazilian airline's IPO. Carrefour Brasil also priced its equity sale within the suggested price range, unlike some Brazilian peers that revised price ranges to go public. With an oversubscribed order book and diverse range of investors, Carrefour Brasil is LatinFinance's IPO of the Year.
During marketing, Carrefour Brasil contacted 260 investors and secured commitments from well-known funds, such as JPMorgan Asset Management, Blackrock, and Investec among others.
Daniela Bretthauer, director of investor relations at Carrefour Brasil, says stock pickers liked the turnaround in the company's finances and Brazil's improved economic backdrop.
"We were confident in the quality of the asset,” she says. “We grew in Brazil, despite the slowdown over the last few years."
The offering did encounter some initial investor pushback because of a political scandal implicating Brazilian meatpacking conglomerate JBS and Brazil’s former Speaker of the House, Eduardo Cunha, which emerged shortly after Carrefour filed its initial documentation with the regulator. Company executives fielded several questions from investors about the scandal, but Carrefour's numbers over the last three years left fund managers convinced of the company's growth, Bretthauer says.
She also says funds were concerned with how the impact of declining food inflation would affect Carrefour's results going forward. But the size of the company, its improving outlook and well-known management enabled Carrefour to price an IPO with strong aftermarket liquidity.
"We still have Peninsula [Carrefour Brasil's minority shareholder] as a major shareholder and Abilio Diniz, who knows the retail market in Brazil," Bretthauer says. Diniz is a board member at Carrefour and former chairman of Brazilian retail chain Grupo Pão de Açúcar (GPA).
Carrefour also chose to go public on Brazil's Novo Mercado, an exchange that requires companies to follow stricter corporate governance rules and to practice a greater degree of transparency.
"So we are ahead on the corporate governance front," Bretthauer adds.
Hedge funds and long-only funds took on the bulk of orders and 40% hailed from Brazil. Approximately 43% of accounts were from the US, while 12% came from European funds and 5% from the rest of the world. LF