IPO market euphoria raising bubble fears
Initial public offerings (IPOs) being priced at the top of the indicative range, with valuations of up to 20% at their market debuts, and secondary offerings with practically the same screen price show how heated the Brazilian stock market is at the beginning of the year. The definition of price and performance on the following day reflect books with over-demand of more than eight times the number of shares offered by companies, fueled by orders from Brazilian asset managers. The euphoria already raises bubble concerns, but the argument of companies, banks working on offers and asset managers who continue to buy them is that it is an anticipation of future profits.
In the IPO of technology company Locaweb, for example, investor demand exceeded ten times what was offered, the company fixed the price at the ceiling of the target range in the prospectus and, on opening day, its shares appreciated 19.42%. In the case of Mitre Realty, also at the maximum price, the shares rose 7.77%. In the follow-on of Ânima Educação, the discount was only 0.41% over the price the security was traded on the stock exchange, and the company was also able to sell its additional lot, given the demand for eight times the book. In Petrobras' billion-real secondary offering, the discount was 1.6%, also with the allocation of the extra lot. The exception was Positivo's offer, which had a high discount and saw shares falling the following day sharply.
The market usually considers reasonable a discount of up to 4% for well-demanded secondary offerings. For IPOs, debut valuations of around 10% tend to make all sides happy - businesspeople think they sold at a reasonable price without leaving money on the table, and investors consider they did a good deal by joining the offer. According to two banks, however, this happened more frequently in the American market. In contrast, in the Brazilian market, the selling company tried to push the price up further, leaving little margin for the stock to rise in the first days. "As corporate financing cycles tend to happen on the capital market from now on, this relationship is changing," a banker says.
The director of a foreign bank points out that Brazilian investors tend to inflate the books of offers by making much bigger reservations than they actually intend to take, so as not to run the risk of being left out - they ask for R$700 million when they only want to take R$300 million, for example. This would also be one explanation...
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