On December 15, 2009, the Brazilian Securities and Exchange Commission (CVM) received an IPO registration request from Multiplus Fidelidade. The company, which handles the customer benefits and frequent flier programs for airline TAM, has joined Aliansce Shopping Centers and International Meal Company Holdings (IMC), companies which had share issue operations under analysis by the regulator as of December 21. Aliansce is a shopping mall administrator that wants to ramp up its business and follow in the same capital market path taken by its rivals BR Malls, Iguatemi, Multiplan and General Shopping. International Meal Company Holdings (IMC) participates in the food sector through the Viena restaurant chain. It also owns other brands such as Frango Assado and Brunella, and provides meals to hotels and airports. Aside from wanting to step out onto the trading floor, the three companies have one thing in common: they focus on retail – one of the segments that should set the tone for this year’s batch of IPOs.

These capital raises will be based on reassuring domestic consumption figures. In its October monthly commerce survey (PMC), the Brazilian Institute of Geography and Statistics (IBGE) revealed that from January through October 2009, retail sales advanced 5.1%, led by the hyper- and supermarket segments, as compared to the ten first months of 2008. According to the survey coordinator, Reinaldo Pereira, sales in 2010 may advance at a similar pace as 2008, when growth was 8.1%.

All this optimism comes with a good dose of caution. The global scenario is not yet showing consistent signs of recovery, particularly in the United States. The country which was the epicenter of the global crisis will have to get through 2010 while dealing with an enormous public debt, bloated by the government’s expenditure on anti-crisis measures and high unemployment. “If the deficit continues to increase and unemployment doesn’t come down, major investors will tend to migrate to U.S. Treasury Bonds, at the expense of stocks from emerging countries like Brazil”, says Silvio Campos, the chief economist at Banco Schahin. Another concern is how the world will react when financial stimulus is withdrawn, and also how China – the world’s biggest commodity consumer and finished goods exporter – will deal with the uncertain status of its buyers, especially the United States and Europe.

The capital market may be more active in the first half of the year and lose steam afterward, when interest rates rise

IMC provides evidence of this uncertain climate: on December 18, it announced a postponement of its offering. That was the due date for disclosure of the operation’s final price, which had been proposed as R$ 14-R$ 17 per share. The company had put up 50 million shares for sale at the primary offering and 7.14 million at the follow-on. However, claiming unfavorable domestic and international circumstances, it decided to postpone the distributions. In an official notice to the CVM, IMC postponed its IPO registration request and affirmed that in 2010 “the market will be monitored in order to assess the best time to go public”.

One factor that made investors uncomfortable was the lack of information about the candidate. IMC is not very well-known, says Peter Ping Ho, the head researcher at Brava Investimentos. “Companies like IMC could adopt a strategy of disseminating their results or management practices, even while they’re still private”, he remarks. In spite of this, Ho identifies a strong appetite for retail and consumer goods IPOs.

There is a broad range of consumer goods and services companies that will have good opportunities to bulk up their cash stores with public fundraisers and ride the wave of Brazil’s economic growth. Companies like Magazine Luiza and Azul Linhas Aéreas fit the profile, observes the chief equity strategist at Banco do Brasil Banco de Investimentos (BB-BI), Hamilton Moreira Alves. “One sign of this segment's strength are the recent mergers, such as Casas Bahias (acquired by the Pão de Açúcar Group in early December)”, he says. Among the companies with a merger-oriented profile, he mentions healthcare company Diagnósticos da América (Dasa) and Hypermarcas, which currently has R$ 500 million in surplus cash and a declared interest in new brands.

ROOM FOR THE LITTLE GUYS — Unlike the billion-dollar IPOs of 2009, the offerings this year will not necessarily be large. “There will be room for smaller operations”, predicts Alberto Kiraly, vice-chairman of the Brazilian Association of Financial and Capital Market Entities (Anbima). Operations in the R$ 600 million to R$ 800 million range should have what it takes to attract investors. The offerings currently gestating at the Machado, Meyer, Sendacz & Opice law firm range from R$ 600 million to R$ 3 billion, according to partner Carlos Motta. The list includes operations by commodity, retail and service companies.

The infrastructure segment is also carrying good expectations. Companies connected to the civil construction chain and shipping and logistics providers are natural IPO candidates, given the current public works projects and the expansion in the number of low-income housing projects. With such a favorable prognosis ¬– and disregarding any bad news from overseas – the volume of shares issued in 2010 is expected to surpass the amount issued in 2009, which was R$ 32 billion. At the Deloitte audit firm, approximately 20 companies are preparing to go public. “We are expecting several fundraising operations in the first half of the year, aiming to raise money for companies that are seeking to implement mergers”, says José Paulo Rocha, leading partner in Deloitte’s corporate finance division.

According to analysts, the capital market will tend to be more active in the year’s first half and lose steam afterward. Alves from BB-BI, for instance, is projecting 78,000 points for the Ibovespa at the end of June, a 16.3% rise compared to the December 17, 2009 trading session closing. The estimate is influenced by an expected interest rate hike in the second semester, which should increase the attractiveness of fixed-rate investments. According to the Central Bank's Focus Bulletin released on December 11, the projected Selic rate for year-end 2010 is 10.75%, two percentage points above the December ’09 rate.

BONDS — Companies with less ambitious expansion plans may also find a receptive market for longer-term debt obligations in 2010. Debenture terms are promising to extend beyond the three-year average seen last year, reaching five or six years, according to the Anbima vice-chairman, Alberto Kiraly. Interest in commercial paper – widely used in the first, more troubled half of 2009 – is expected to wane in 2010. With its maturity periods of about 180 days, the instrument is no longer an interesting alternative in a stable environment. Commercial paper was used mostly as guarantees for short-term liabilities, comments Alves from BB-BI. “Now that things are returning to normal, it’s natural for this instrument to be put aside and for issuers to start preferring debentures”, says Arthur Piotto, the investor relations (IR) director at the Companhia de Concessões Rodoviárias (CCR), a highway concession company.

CCR is taking advantage of institutional investors’ greater willingness to invest in corporate debt. At the end of July 2009, the company approved two series of debenture issues. The first totaled R$ 448.15 million, paying 112% of the interbank rate (CDI) and maturing in 2012; the second totaled R$ 150 million at a fixed rate of 7.5% per year plus the IPCA inflation rate, maturing in 2014. In December, CCR issued another R$ 250 million with an even longer maturity period: 2016. “We have been noticing an interest in terms of up to ten years, which is in line with our needs”, Piotto comments.

The greater profitability of debentures in relation to other fixed-rate instruments such as bank deposit certificates (CDB) and government bonds is a powerful lure. They have even been drawing more and more attention from major individual investors, who accounted for 5.5% of this market in 2009. The Anbima, in turn, has been trying to fight debentures’ persistent lack of liquidity. In November, it presented a project for a debenture profitability index, aiming to help disseminate the product. In 2009, the Andima (before merging with the Anbid and becoming the Anbima) went to Brasília to petition for granting debentures the same tax benefit applicable to government bonds. Foreign investors do not need to pay tax on their gains from such bonds.

Public offerings of financial bonds — a new type of debt instrument that works like a kind of debenture for banks — are awaited as one of the year’s main novelties. Anbima vice-chairman Alfredo Moraes is expecting to see the first issue of this kind by February, with more to come in the second quarter. The private debt market is showing all the signs of a lively year. The CVM computed 20 registered and registration-exempt debenture offerings in 2009, which added up to R$ 10.8 billion. That amount is almost four times less than in 2008, when 36 offerings were executed for R$ 40 billion.