San Francisco (MarketWatch) — Latin America’s market for initial public offerings faces a difficult year in 2012, mostly due to sluggish economic growth across the region.
Latin America ‘s economy is expected to grow just 3.7% in 2012, down from 4.3% in 2011, according to the United Nations Economic Commission for Latin America and the Caribbean.
The slower growth is expected to be across the board. Only Brazil is expected to grow faster next year than it did this year, but even Brazil’s expected growth of 3.5% in 2012 will follow a very slow year in 2011, when it grew approximately 2.9%.
In terms of IPOs, Brazil has been the driver for the region, posting 11 initial public offerings on the local market in each of the last two years.
The bolsas in Buenos Aires, Santiago, Colombia, and Lima have trailed over the past two years, with a combined total of just six in 2010.
In a report, Marcelo Kayath of Credit Suisse said 2012 will be a “difficult” year for IPOs in Brazil, and one that is very selective.
Brazil was lucky in 2011, in part because several IPOs were already lined up when the year began. Gavea, the private equity fund founded by Arminio Fraga, the former central bank president, raised $628 million in three IPOs for Brazilian companies in the first few months of the year.
This year’s 11 IPOs in Brazil raised just $4.6 billion, versus $6.4 billion the year earlier. That compares favorably to the 45% drop across the globe raised in IPOs through November, according to a study by Ernst & Young.
On the slate for next year, about 45 companies are waiting to go public in Brazil, according to Edemir Pinto, chief executive officer of the Sao Paulo stock exchange, the BM&FBovespa. Among those companies are two consumer companies, Intercosmetic Holding and Brasil Travel Turismo.
IPOs and foreign investors
What does all this mean for foreign investors? The IPO market can be indicative of trends for the overall Latin markets and for specific industries.
Foreign investors shouldn’t be investing in Latin American IPOs in the first place, and in many cases aren’t allowed to anyway. But, it pays to watch companies after their IPOs to determine if they are worth investing in.
“In the U.S., most IPOs underperform the market in the days and weeks after they are launched. Why would you want to take on more risk by investing in Latin American IPOs?” says Steve Geri, founder of San Francisco-based InvestSimply.
Still, while foreign investors should steer clear of local IPOs, the subsequent sale of shares by existing publicly traded companies is worth paying attention to — whether those shares are sold locally or overseas.
Selling American Depositary Receipts to foreign investors is a popular way for Latin American companies to raise more money for expansions or to simply make it easier for Americans to trade their stock.
Arcos Dorados Holdings (ARCO) is just one of several Latin America companies that were launched this year in the U.S. Arcos Dorados, which means “golden arches” in Spanish, holds the franchise for 1,755 McDonald’s restaurants in Latin America.
While its stock in recent trading was just below its IPO launch in April, it is nonetheless a good way to invest in the region and its economic growth.
There is still a lot of cash on the sidelines in Latin America, waiting for a place to go. Once the tide turns positive, the spigot for IPOs will again open.
marketwatch.com
Latin America ‘s economy is expected to grow just 3.7% in 2012, down from 4.3% in 2011, according to the United Nations Economic Commission for Latin America and the Caribbean.
The slower growth is expected to be across the board. Only Brazil is expected to grow faster next year than it did this year, but even Brazil’s expected growth of 3.5% in 2012 will follow a very slow year in 2011, when it grew approximately 2.9%.
In terms of IPOs, Brazil has been the driver for the region, posting 11 initial public offerings on the local market in each of the last two years.
The bolsas in Buenos Aires, Santiago, Colombia, and Lima have trailed over the past two years, with a combined total of just six in 2010.
In a report, Marcelo Kayath of Credit Suisse said 2012 will be a “difficult” year for IPOs in Brazil, and one that is very selective.
Brazil was lucky in 2011, in part because several IPOs were already lined up when the year began. Gavea, the private equity fund founded by Arminio Fraga, the former central bank president, raised $628 million in three IPOs for Brazilian companies in the first few months of the year.
This year’s 11 IPOs in Brazil raised just $4.6 billion, versus $6.4 billion the year earlier. That compares favorably to the 45% drop across the globe raised in IPOs through November, according to a study by Ernst & Young.
On the slate for next year, about 45 companies are waiting to go public in Brazil, according to Edemir Pinto, chief executive officer of the Sao Paulo stock exchange, the BM&FBovespa. Among those companies are two consumer companies, Intercosmetic Holding and Brasil Travel Turismo.
IPOs and foreign investors
What does all this mean for foreign investors? The IPO market can be indicative of trends for the overall Latin markets and for specific industries.
Foreign investors shouldn’t be investing in Latin American IPOs in the first place, and in many cases aren’t allowed to anyway. But, it pays to watch companies after their IPOs to determine if they are worth investing in.
“In the U.S., most IPOs underperform the market in the days and weeks after they are launched. Why would you want to take on more risk by investing in Latin American IPOs?” says Steve Geri, founder of San Francisco-based InvestSimply.
Still, while foreign investors should steer clear of local IPOs, the subsequent sale of shares by existing publicly traded companies is worth paying attention to — whether those shares are sold locally or overseas.
Selling American Depositary Receipts to foreign investors is a popular way for Latin American companies to raise more money for expansions or to simply make it easier for Americans to trade their stock.
Arcos Dorados Holdings (ARCO) is just one of several Latin America companies that were launched this year in the U.S. Arcos Dorados, which means “golden arches” in Spanish, holds the franchise for 1,755 McDonald’s restaurants in Latin America.
While its stock in recent trading was just below its IPO launch in April, it is nonetheless a good way to invest in the region and its economic growth.
There is still a lot of cash on the sidelines in Latin America, waiting for a place to go. Once the tide turns positive, the spigot for IPOs will again open.
marketwatch.com
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