Sell-off slows LatAm momentum

Sell-off slows LatAm momentum

Capital Markets Equity IPO

Two IPOs from Latin America may be delayed this week as the sell-off in US Treasuries infiltrated neighboring markets.

Argentine agribusiness Bioceres was poised to price its IPO on Tuesday, but sources said the company may keep its orderbook open for an extra day.

The extension comes in hope that global markets recover through Tuesday trading, following the hefty sell-off from last Friday. Sources could not determine whether Bioceres would lower a suggested price for its stock.

Brazilian Blau Farmaceutica, scheduled to go public on Wednesday, had filled half the orderbook by Tuesday morning, one banker said. The company may have to settle on a lower offer price, to get its IPO over the line, he added.

This week is the final window to price an IPO with Q3 financials, as equity markets enter what is known as a "stillness" period next week. Should Bioceres or Blau fail to get their equity offerings over the line, then the pair will likely submit revised financial documentation, delaying the IPOs into March.

"The problem is, financials expire next week," the banker said. "What makes sense... Try to lower the price."

Despite the sell-off last Friday and on Monday, US markets moved into positive territory on Tuesday morning, as investors digest the reality of further interest rate hikes this year.

"I think it is more of a short-term correction... The markets were over-heated in January and we were not expecting it to be this strong, this quickly," an ECM source said.

A buyside source said the market faces possibly four-to-five interest rate hikes by the US Federal Reserve this year, as oppose to what many originally thought would be three-or-four.

"If more rate hikes occur than what was expected, then it is going to hurt cash flow," he said. "We are also worried about inflation creeping up and what that means for prices on IPOs."

Last month, Bioceres set a price range between $10 and $12 per American Depositary Share (ADS). It is offering 11.82m primary shares, plus a greenshoe for 1.77m extra ADSs.

Blau in January set a range between BRL13 ($4.06) and BRL17 for a 50m share offering in Brazil.

Bond issuers mull pause amid correction

A number of LatAm issuers scheduled to complete investor meetings on Wednesday may also hold off on raising debt.

Investors will sense an opportunity to pick up new bonds at a larger premium, one DCM banker said. "It is not that they can not issue it is simply not the prudent thing to do," the banker said of this week's potential sales.

Cresud, Brazil's CSN, power companies Gran Tierra and Prime Energia and sovereign Dominican Republic are wrapping up roadshows.

"Whether they come [to market] or not will depend on how the market performs before roadshows end," a second banker said.

Throughout Tuesday trading, there was some corrections, as markets digest the increased likelihood of interest rate hikes from the US Federal Reserve.

Peru's Camposol completed investor calls on Monday, but by late Tuesday, it had not outlined any price guidance for a bond sale. The agribusiness last week announced investor meetings after postponing an IPO.

"I can not say [Camposol] won't come [to the bond market] but I do not think they can do what CAF did," a third banker said. The Latin American development bank printed €1bn ($1.2bn) in 2025 notes at 1.125% on Tuesday.

As the region's corporates enter blackout periods this month, issuers have little time to decide whether to raise new debt amid volatility. If not, they risk confronting uncertain conditions in the months ahead.

After the blackout period, companies will register any new capital markets activity with Q4 financials. Depending on earnings growth, the question of whether LatAm issuers, particularly corporates, can obtain the record-low spreads that have been on offer this year, remains uncertain.

Federal elections in Brazil, Mexico, Paraguay and Colombia may impact issuance volumes, while increased interest rates in the US and Europe will likely hike the cost of borrowing later this year.

"There is no crisis behind [the sell-off], so you would not expect it to be so vicious," an investor said of the market drop. "It is likely overdue, because it did not happen sooner... Actually, it is a little bit of coming back down to Earth."