July 19, 2017

Breakingviews: Carrefour unit shows way to Brazil IPO revival

by Breakingviews.

French supermarket chain Carrefour’s Brazilian unit raised $1.6 billion in the country’s biggest stock offering in four years. It’s the latest in a rising deal flow that suggests growing confidence Latin America’s biggest economy is getting back on track. But the pace of recovery is tepid, and sensible pricing is key.

Carrefour Brasil priced its shares at the low end of the indicated range on Tuesday, and the amount raised was a bit less than the 5.6 billion reais it had hoped for. Investors may have thought the retailer doesn’t deserve to trade at much of a premium to bigger rival GPA. Colombian pharmaceutical company Grupo Biotoscana, meanwhile, had been due to price an offering of Brazilian depository receipts on Tuesday but delayed doing so until Friday while answering an accounting question from regulators. The two companies’ actions will make this week Brazil’s busiest for IPOs since February, and this year may be the country’s busiest since 2013.

The roughly $2 trillion economy is slowly recovering after two years of deep recession. GDP is expected to expand around 0.3 percent this year after contracting precipitously in 2015 and 2016. President Michel Temer has adopted business-friendly policies since replacing impeached leftist Dilma Rousseff about a year ago. Although he is fighting off corruption allegations and his centerpiece reform to the country’s costly pension system is stalled, more modest changes to labor laws, for example, are going ahead. If Temer were to fall, the man who would at least initially take over, lower house of Congress leader Rodrigo Maia, backs his reforms.

Sao Paulo’s Bovespa stock index has risen nearly 9 percent this year, and almost 75 percent since its 2016 low. As growth returns and business confidence recovers, Brazil may see 15 to 20 more IPOs by local companies in 2017, Gilson Finkelsztain, the head of the country’s stock-exchange operator B3, said last month. If he’s right, that would be the highest total since at least 2013.

Airline Azul, medical-diagnostic firm Hermes Pardini and car-hire firm Movida have already gone public this year while companies planning to do so include IT-services provider Tivit, the country’s largest reinsurer IRB Brasil, healthcare-services provider NotreDame Intermedica and renewable energy firm Omega Geraçao. That’s a vote of confidence on the part of companies and investors that Brazil hasn’t seen in years.

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