Tuesday, 16 October 2018

Latin America Equity Issue: BB Seguridade’s US$5.73bn IPO

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Defying squalls

To have the world’s largest IPO of the year come out of Brazil amid endless market turbulence and the collapse of the empire run by the country’s richest man is in itself outstanding.

Yet this is exactly what Banco do Brasil achieved when it spun off its insurance unit BB Seguridade with a three times covered R$11.48bn (US$5.73bn) all-secondary IPO on April 26.

Despite its jumbo size, the deal priced in the upper half of the R$15–$18 range at R$17 per share, thanks to a combination of scarcity value, stellar execution from lead banks and a well-recognised brand.

“Scarcity value played a big part with this deal. Insurance penetration in Brazil is still very low,” said Renata Dominguez, senior vice-president in ECM at Itau. “Banco do Brasil as a brand name is an emblem to the market too. People in Brazil know this name and the hit ratio was amazing.”

Management’s commitment to the process was remarkable. Pilot fishing lasted five days with 25 one-on-one meetings. The roadshow was a marathon 27 days as management and bankers hosted approximately 560 meetings and conference calls with investors. Not only were the meetings numerous, they were effective.

The conversion ratio of one-on-one roadshow meetings was 67% – well above the norm of around 50%, said bankers. The conversion ratio at R$17 per share was 57%, according to Banco do Brasil data.

In the final book retail investors accounted for 30% of demand, an unprecedented number on a Brazilian equity trade. A key factor was using Banco do Brasil’s extensive retail bank network and even taking orders through ATMs.

On the institutional end, there were more than 200 investors with 39% coming from the US, 36% from Brazil, 21% from Europe, 2% from Asia and 2% others. Long-only investors were allocated 54% of the institutional portion.

The deal also unlocked hidden value for Banco do Brasil. BB Seguridade was valued at R$34bn, about 50% of the market cap of its parent, which was R$72bn at the time of the offering.

As of November 18, the market capitalisation had risen to R$47bn. An initial rise in the stock price upon debut was followed by weakness in June, before steady gains through to November. Third-quarter results in November were in line with expectations – and pointed to a brighter future.

BB Seguridade was the lead bookrunner, with JP Morgan as the stabilisation agent. Bradesco, Itau, BTG Pactual, Citigroup, Brasil Plural and Banco Votorantim were bookrunners.

To see the full digital edition of the IFR Review of the Year, please click here.

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