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Brazilian companies looking for IPOs are hit by a market retreat

After an IPO boom, political and economic instability causes companies to re-pricing or suspending their offers on the stock exchange

B3, Brazilian stock exchange
Photo: Alf Ribeiro/Shutterstock
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  • The first months of 2021 saw a historic increase in IPOs on the Brazilian stock exchange due to low-interest rates;
  • But now, the momentum for IPOs and stock offers cooled down, affected by political and economic instability;
  • Companies that want to go ahead with the IPO may have to re-price their initial offers.

After a three-month increase in the number of initial public offering (IPO), with queues of companies awaiting authorization from the Brazilian Securities and Exchange Commission (CVM) to sell shares for the first time, it seems that the momentum for IPOs and stock offers cooled down. If between January and February IPOs and follow-ons handled BRL 30 billion, now the pricing revealed a less attractive scenario for companies.

Although more than 40 companies are awaiting authorization from the CVM to debut on the stock exchange, at least 18 others have given up going public for the time being.

READ ALSO: IPOs are on the rise in Brazil thanks to historically low interest rates

Among them, LG Informática, which suspended the IPO for 60 days shortly after announcing the end of smartphone production, and the pharmaceutical company Blau, which postponed pricing until next week and reduced the stock offer by 40%.

The analysis of the reasons for this market retreat points to several causes: from the interference of the federal government in state-owned companies – such as the recent changes in the command of Petrobras and Banco do Brasil – to political and economic instability due to the upsurge of the pandemic and obstacles to implementing tax reforms.

READ ALSO: COVID-19 investigation committee deepens the crisis between Bolsonaro and Congress

The result is investors less willing to take chances on new offers and companies pricing shares below expectations. Therefore, there are two alternatives: either re-pricing or suspending the debut on the stock exchange until the favorable winds blow again.

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