Global banks left on the sidelines in Brazil’s IPO boom

The Sao Paulo’s Stocks Exchange (Bovespa) headquarters is seen in Sao Paulo, Brazil. (AFP/File)
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Updated 15 September 2020

Global banks left on the sidelines in Brazil’s IPO boom

  • Key factors behind the shift include the increasing importance of reaching domestic investors

SAO PAULO: The days of marquee global investment banks being shoo-ins for stock market listings could be coming to an end, in Brazil at least.

The Brazilian market for initial public offerings is booming this year despite the pandemic. Yet among the five banks leading managers’ rankings in terms of deal volumes, four are domestic, according to Refinitiv data: Itau Unibanco Holding SA , Banco Bradesco SA, XP Inc. and Banco BTG Pactual SA.

The other is Bank of America.

That’s a marked reversal from the same period last year, when four of the top five were major global players — Bank of America, Credit Suisse, Citi and HSBC — with just one Brazilian outfit, Banco do Brasil.

Still, industry experts caution that, despite the shifting trends in 2020, it is too early to call a structural change in a market for IPOs that has been dominated by global banks for years.

Key factors behind the shift, according to industry experts, include the increasing importance of reaching domestic investors, and local banks’ existing relationships and loans to many of a new breed of midsize companies eager to go public.

Brazilian investors have flooded into stocks in recent months as interest rates have slumped to all-time lows, making fixed-income investments less attractive. Foreign investors have accounted for 38 percent of the money in Brazilian IPOs this year, compared with 57 percent two years ago and below the historic average level of 60 percent since 2007. “Local investors are moving to equities and fund managers are having a hard time finding company shares to buy,” said Pedro Mesquita, a partner at XP bank. When cash rebates provider Méliuz began planning an IPO last month, for example, it could have opted for global players, also including the likes of JPMorgan Chase, Morgan Stanley and Goldman Sachs, which all have local offices.

Yet Méliuz’s founders and venture-capital investors instead tapped BTG Pactual, Bradesco, XP and Itau Unibanco as its bookrunners.

Global banks are, however, still likely to be seen as the safe go-tos for the biggest deals, and they will likely snag some big mandates by the end of the year, industry experts say.

Multibillion-dollar IPOs, such as those by insurance company Caixa Seguridade SA, hospital chain Rede D’Or and retailer Havan SA will be managed by international as well as local banks, for instance.

“Local banks often have existing commercial relationships with smaller companies as they grow into the scale required for an IPO, but this does not mean that global banks will not lead in terms of volumes by year-end,” said Fabio Medeiros, managing director at Morgan Stanley in Sao Paulo.

IPOs in Brazil are on track for their biggest year since 2007. Thirteen companies have already made their debut and more than 40 others have filed for offerings with the regulator.

So far, companies have raised $3.1 billion, up 113 percent from the same period a year ago, in the 13 IPOs — outperforming global IPOs, which are up 20 percent, according to Refinitiv data.

In India, by comparison, there have been 21 IPOs, but they raised $1.7 billion, down 22.8 percent from a year earlier, while in China 328 deals raised $52.4 billion, more than double versus a year ago.

The four domestic banks leading Brazil’s ratings accounted for 54.3 percent of the country’s $3.1 billion deal volumes.

Many companies propelling the new IPO wave hail from beyond the traditional Sao Paulo-Rio business corridor, where global banks often lack offices and relationships.

“For a long time, the Brazilian stock exchange was all about commodities and banks,” said Alessandro Farkuh, head of investment banking at Bradesco. “Now there are companies from different industries, from pure e-commerce to more regional retail businesses. Domestic banks know all these companies.”


Australian watchdog considers its own Google antitrust case

Updated 21 October 2020

Australian watchdog considers its own Google antitrust case

  • Competition and Consumer Commission launched Australian court action against Google in July

CANBERRA, Australia: Australia’s competition watchdog will consider its own antitrust case against Google, the commission chairman said Wednesday after the US Justice Department sued the company for abusing its dominance in online search and advertising.
Competition and Consumer Commission chairman Rod Sims described the US case filed Tuesday as one of the world’s biggest antitrust cases in the past 20 years.
“I’m delighted the D.o.J.’s taking it on and we’ll follow it really closely,” Sims told the National Press Club, referring to the US Department of Justice.
“We’re going to look at it and see whether there’s any value in what we might do,” Sims added.
Separately, Sims is drafting legislation to address the imbalance in bargaining power between Google and the Australian media businesses that want the tech giant to pay for journalism.
The bills, that will be ready to be introduced to Parliament by December, would empower an arbitrator to make binding decisions on how much Google and Facebook must pay media companies for news content.
Sims said his commission “had a lot of talk” with the US Justice Department before he released a report in July last year that recommended more government regulation on the market power of Google and Facebook that would ensure fair deals for other media businesses and more control for individuals on how their data was used.
Sim’s commission launched Australian court action against Google in July alleging the California-based company misled account holders about its use of their personal data.
The commission alleges the Google misled millions of Australians to obtain their consent and expand the scope of personal information that Google collects about users’ Internet activity to target advertising. Google denies the allegations.
In October last year, the commission sued Google in an Australian court alleging the company broke consumer law by misleading Android users about how their location data was collected and used. That case will be heard by the Federal Court next month. Google also denies that allegation.
Sims said Google was lobbying “every politician at Parliament House” ahead of draft legislation being introduced to make it pay for news.
Google has said the proposed laws would result in “dramatically worse Google Search and YouTube,” put free services at risk and could lead to users’ data “being handed over to big news businesses.”
Facebook has warned it might block Australian news content rather than pay for it.