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FOCUS-Global banks left on the sidelines in Brazil's IPO boom

Mon, 14th Sep 2020 11:00

By Carolina Mandl

SAO PAULO, Sept 14 (Reuters) - The days of marquee global
investment banks being shoo-ins for stock market listings could
be coming to an end, in Brazil at least.

The Brazilian market for initial public offerings is booming
this year despite the pandemic. Yet among the five banks leading
managers' rankings in terms of deal volumes, four are domestic,
according to Refinitiv data: Itau Unibanco Holding SA
, Banco Bradesco SA, XP Inc and
Banco BTG Pactual SA.

The other is Bank of America.

That's a marked reversal from the same period last year,
when four of the top five were major global players - Bank of
America, Credit Suisse, Citi and HSBC -
with just one Brazilian outfit, Banco do Brasil.

Still, industry experts caution that, despite the shifting
trends in 2020, it is too early to call a structural change in a
market for IPOs that has been dominated by global banks for
years.

Key factors behind the shift, according to industry experts,
include the increasing importance of reaching domestic
investors, and local banks' existing relationships and loans to
many of a new breed of midsize companies eager to go public.

Brazilian investors have flooded into stocks in recent
months as interest rates have slumped to all-time lows, making
fixed-income investments less attractive. Foreign investors have
accounted for 38% of the money in Brazilian IPOs this year,
compared with 57% two years ago and below the historic average
level of 60% since 2007.
"Local investors are moving to equities and fund managers are
having a hard time finding company shares to buy," said Pedro
Mesquita, a partner at XP bank.

When cash rebates provider Méliuz began planning an IPO last
month, for example, it could have opted for global players, also
including the likes of JPMorgan Chase, Morgan Stanley
and Goldman Sachs, which all have local offices.

Yet Méliuz's founders and venture-capital investors instead
tapped BTG Pactual, Bradesco, XP and Itau Unibanco as its
bookrunners.

Global banks are, however, still likely to be seen as the
safe go-tos for the biggest deals, and they will likely snag
some big mandates by the end of the year, industry experts say.

Multi-billion-dollar IPOs, such as those by insurance
company Caixa Seguridade SA, hospital chain Rede D'Or and
retailer Havan SA will be managed by international as well as
local banks, for instance.

"Local banks often have existing commercial relationships
with smaller companies as they grow into the scale required for
an IPO, but this does not mean that global banks will not lead
in terms of volumes by year-end," said Fabio Medeiros, managing
director at Morgan Stanley in Sao Paulo.

DEAL BOOM IN BRAZIL

IPOs in Brazil are on track for their biggest year since
2007. Thirteen companies have already made their debut and more
than 40 others have filed for offerings with the regulator.

So far, companies have raised $3.1 billion, up 113% from the
same period a year ago, in the 13 IPOs - outperforming global
IPOs, which are up 20%, according to Refinitiv data.

In India, by comparison, there have been 21 IPOs, but they
raised $1.7 billion, down 22.8% from a year earlier, while in
China 328 deals raised $52.4 billion, more than double versus a
year ago.

The four domestic banks leading Brazil's ratings accounted
for 54.3% of the country's $3.1 billion deal volumes.

Many companies propelling the new IPO wave hail from beyond
the traditional Sao Paulo-Rio business corridor, where global
banks often lack offices and relationships.

"For a long time, the Brazilian stock exchange was all about
commodities and banks," said Alessandro Farkuh, head of
investment banking at Bradesco. "Now there are companies from
different industries, from pure e-commerce to more regional
retail businesses. Domestic banks know all these companies."

COMPETITION HEATS UP

When family-owned homebuilder Moura Dubeux hired five banks
for its IPO earlier this year, four were domestic.

Three of those were existing creditors. Credit Suisse
, the one global bank chosen, is the private banker for
the family that owns the company.

"I realized that the majority of my investors would be
Brazilians and I think local banks have reached a global
standard to manage share offerings," said Diego Villar, CEO of
Moura Dubeux, based in the northeastern state of Pernambuco.

Roderick Greenlees, head of investment banking at Itau
Unibanco, said domestic banks had been well-placed to see the
shifting IPO landscape.

"Brazilian banks realized there would be a growing demand
for capital markets services and hired more bankers in recent
years," he added.

Even so, with so many local and global banks pitching for
business in Brazil, it's an increasingly competitive market.
Average fees were 3.3% last year, compared with 4.4% in the
United States, according to data provider Dealogic.
(Reporting by Carolina Mandl; Editing by Christian Plumb and
Pravin Char)

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