Higher interest rates, falling stocks cool demand for IPOs
The devaluation of the Brazilian stock market and the lower inflow to the stock market put in question a good part of the stock offerings planned for the last four months of the year. With the more volatile scenario caused by the recent political turmoil and higher inflationary risk and interest rate, investment banks are reviewing their estimates for offerings until the end of the year.Among XP analysts, the euphoria has given way to caution. The firm estimates there will be 90 IPOs or secondary offerings this year, raising R$150 billion to R$170 billion. Pedro Mesquita, head of investment banking at XP, originally projected there would be 100 to 120 offerings raising a combined R$200 billion."There was an increase in the perception of Brazil risk among investors, but this does not mean that the market will be closed," Mr. Mesquita said. For him, the capital market has a long way to go in Brazil. "The interest rate still remains low and we have seen in recent years the democratization of investments, with several new funds and asset-management firms."Many companies with good stories are still able to tap the capital market, he added.Smaller companies seeking to raise up to R$400 million, an amount seen as small in Brazil, are likely to struggle to tap the market, said Eduardo Mendez, head of Latin America Equity Capital Markets at Morgan Stanley. "This niche has become more complicated, it is the highest risk spectrum," he said. But larger companies will still have an opportunity to raise capital if they execute the offerings "at the right price," he said."Whenever we see these shakes in the market, the more fragile companies have a harder time," he said. For this reason, Mr. Mendez considers it unlikely that in 2022 the capital market will repeat this year’s performance, and the number of stock offerings may be close to 100. "It seems to me a very aggressive forecast," he said. "We will have a volatile market, a polarized political environment, but still an active market."The companies are not on hold and offerings planned are still up, said Eduardo Miras, head of investment banking at Citi in Brazil. "But it would be misleading to say that nothing has changed," he admits.Without naming names, Mr. Miras said that some offerings have already been postponed, and now the issuers must carefully monitor the market conditions to decide the best moment. "We don’t control the market variable, and things can change very quickly," he said."It is...
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