CAMPOS DO JORDAO, Brazil: Many initial public offerings in Brazil have led to investor losses over the past eight years, a senior Credit Suisse Group fund manager said, with the worst results coming from oil and gas — a sector that for years was seen as the nation’s most promising.
Only 37 of the 117 IPOs since the start of 2005 have yielded returns above the benchmark CDI interbank lending rate, with remainder losing as much as half of the amount initially invested, according to a presentation by Luiz Stuhlberger, who as chief investment officer oversees 43bn reais ($18bn) in assets for Credit Suisse Hedging Griffo.
Overall, Brazilian offerings have yielded a negative 15.2 percent to investors since 2005, with the worst numbers coming from oil IPOs — which posted a negative 51 percent, Stuhlberger said. IPOs in telecommunications firms, toll operators and commercial property developers were the best options for investors, returning 32 percent, 54 percent and 1.8 percent, respectively. “Most of these IPOs didn’t even compensate the cost of equity,” he said, adding that “the more the company depended on future results, the worse the performance of its stock.”
Stuhlberger’s data explains why Brazil’s once-hyped IPO market has struggled over the past couple of years, given the risk of overpriced deals, flagging economic growth and the impact of heavy state interference in some sectors of the economy.
He said that investors, for instance, could have done better by investing their money in good-quality companies, which he defines as those whose share price trade between two and three times their book value. Some of those companies are beverage maker Cia de Bebidas das Americas SA, also the country’s largest private-sector firm by market value and shoemaker Arezzo SA.
“Good quality companies tend to be a good deal for investors - you might pay a little premium here and there to have them, but the return is there,” he noted.
Stung by a string of deals that failed to deliver the promised returns, investors are being extra cautious in Brazil, casting a dark cloud over a pipeline of potential deals.
Reuters
