Brazil’s Unseaworthy Flotation Attempts
Brazilian stocks after rocketing 20 percent were shaken by the failure of simultaneous IPOs as a startup travel company and the local unit of Norway’s Seadrill met with rejection and foreign investors, who took half the action last year, stayed on the sidelines. The tourism operator looked to raise $850 million after a six-month hiatus following a lackluster $10 billion total last year that was one-quarter 2010’s record. Equity players passed in favor of bigger established listings trying to cope with a 3-4 percent GDP growth climate as the central bank takes rates below double-digits. The exchange operator itself reported lower earnings and volume in the last quarter, and banks and brokers are increasingly pursuing a continental strategy to maintain profits and franchise strength, as in the recent tie-up between BTG Pactual and Celfin Capital. Debt financing remains the preferred route with $20 billion raised through mid-February, including a mammoth $7 billion global bond from Petrobras which received quadruple that amount in orders after a chief executive reshuffle putting an ally of President Dilma Rousseff in place. The stock market disappointment as well did not seem to dent enthusiasm for Sao Paulo airport concession privatization although the winning bidding groups featured well-known state pension funds and industrialists. Heavy fixed-income inflows however have resurrected the “currency war” cry as the central bank is again intervening against rapid real appreciation. Macro-prudential measures could be added after a pause and partial reversal, and transaction taxes may be a tempting option to uphold the promised 3 percent of GDP primary fiscal surplus as the government also revisits structural changes in pensions and other areas. It has dunned mining giant Vale for back taxes, and demanded that development lender BNDES increase dividends.
The trade balance is weaker with Asian commodity demand, and officials are pushing an agenda of new export locations and administrative and labor incentives to boost competitiveness. A business delegation accompanied the president on a visit to Cuba which focused on construction projects while downplaying foreign policy aspects. In response to poor World Bank rankings an omnibus law has gone into effect to ease enterprise formation. The formalization effort for small traders may enable a more accurate reading of unemployment which is officially under 5 percent. With looser monetary policy and credit still expanding at a 15-20 percent annual clip, inflation expectations are at the top of the target range. The central bank denies any caving to political desires and argues that the global context indefinitely removes rate hike return. The region, with the exception of Colombia, has echoed the need for a supportive stance and even there the 25 basis point hike may not be repeated soon in the offering pipeline.
