Latin America Equity House

Spreading its wings: Although Brazil has been the frontrunner in equity offerings in the past five years, in 2011 other Latin American countries comprised a bigger piece of the pie. For extending its strength in the region beyond Brazil, while maintaining a strong presence in this key market, Credit Suisse is the Latin America Equity House of the Year.

 | Updated:  |  IFR Review of the Year 2011

In a year marked by volatility, in which numerous deals were pulled, execution was increasingly important. And at a time when the role of local investors increased, a clear regional footprint was also paramount. Against this backdrop, Credit Suisse was an “obvious choice”, in the words of a UK portfolio manager, to win this award.

In 2011, the Swiss firm executed 21 transactions, many of them watershed deals. And while the bank does not head the league table this year – it was number two behind Brazil-focused lender Itau Unibanco – it was present across the region, a key detail in a year when 48.7% of the equity transactions in Latin America happened outside Brazil. As a comparison, in 2010, issuance out of Brazil totalled 78.6% of everything done in the region.

Credit Suisse has had a strong and consistent foothold in the South American country too, thanks in part to its 1998 acquisition of local investment bank Garantia. But the institution has smartly used that as the base to branch out elsewhere in the region.

“We have a massive Latin American business and presence, away from just Brazil,” said Santiago E Gilfond, managing director of equity capital markets at Credit Suisse.

The bank can brag about more than regional diversification. Credit Suisse has also been active across sectors. It had a strong foothold in Brazilian real estate offerings, an active portion of the market, having been bookrunner on the follow-ons of Brasil Brokers, Tecnisa and Sonae Sierra.

“The Brazilian real estate IPO market is extremely challenging, especially for an international bank,” said an investor.

Beyond that, Credit Suisse was also one of the banks on the Arcos Dorados follow-on, a transaction that drew plenty of attention given the challenging moment it was executed and the high valuation it achieved.

Arcos Dorados made history as the most oversubscribed deal of its size in Latin America and is IFR’s Latin America Equity Issue. But Credit Suisse was also involved in another high-flyer. In January, the IPO of Arezzo saw institutional demand exceeding the offer by 10 times, allowing the Brazilian retailer to price at a premium to its main competitor.

Its credentials also included Adecoagro’s US$314m IPO, the first US-listed Latin American agribusiness company. Credit Suisse was also a joint bookrunner on Ecopetrol’s US$1.4bn follow-on in August. This was the second largest equity offering out of Colombia, after Ecopetrol’s own US$2.796bn IPO in 2007.

Unleveraged growth

Credit Suisse’s extensive footprint in Latin America, though, was not built on lending power. In Latin America bookrunners are often chosen because of their loan capability and Credit Suisse is not known for having a big cheque book.

“Our balance sheet is limited and used strategically,” said Gilfond. So the bank relies on its execution track record to get deals done. “[The amount of deals] we did reflects that issuers value what we offer in Latin America.”

Several deals spoke to the strength of the bank’s execution. Adecoagro, Almacenes Exito and YPF were all examples of when Credit Suisse moved away from the plain vanilla to get a deal done.

The US$1.4bn Almacenes Exito follow-on was the largest Latin American retail equity offering ever, in which the bank structured a successful, but complex, rights and rump offering.

“Exito was a good example of where we can bring together the parts of the deal,” said Gilfond. “We were advisers in the deal, notwithstanding we were on the other side on the M&A trade.”

Meanwhile, the US$1.236bn YPF follow-on from March 2011, for which Credit Suisse acted as global co-ordinator and joint bookrunner, was the largest Argentine equity offering since YPF’s IPO in 1993. The deal was complicated too, with a private offering before the IPO, to avoid undue market risk for Repsol, especially since it was effectively a re-IPO.

The approach for YPF was crucial considering the backdrop for the trade. The S&P 500 had plummeted 4% during the first three days of the roadshow, while the Japanese nuclear crisis and political rumblings in Libya persisted throughout the marketing period. And yet, the deal priced with a minimal discount of 2.3%.

The bank’s ties to YPF have roots in its advice and structuring for the Petersen Group when it acquired a 14.9% stake in YPF in 2007.

Gilfond said the long-term relationship and repeat business are further indications of how happy clients are with the bank’s performance. “Issuers are keen on seeing global and strong distribution in equity capital markets,” said Gilfond.

Acceptable imperfections

But sometimes knowing when not to do a deal is as important as pushing to do one against the market. “Timing has been very important,” said Gilfond. “There have been a few transactions which we decided not to do.”

Still, Credit Suisse is far from perfect and in such a complicated year, it did not go out completely untarnished. But then, neither did the other major banks in the region.

One dark spot for the bank, at least according to some competitors and investors, was Abril Educacao. The US$238m IPO in July faced a lot of headwinds, and though it had a good amount of demand across Brazil, US, Canada and Europe, “it was a disaster for investors”, said a rival ECM banker. “It plummeted after launch and just went out at the wrong time.”

The bank was also the sole bookrunner on the Hypermarcas US$613m accelerated bookbuild, which was the largest ever Brazilian block trade, completed in a 24-hour auction. While the execution of that transaction was impressive and gave Credit Suisse bragging rights, selling Hypermarcas stock is not something to be proud about when the stock was down more than 64% in 2011 by the end of November.

But given that the transaction was done around the Christmas holiday of 2010, a challenging time of year, it still was a statement of the bank’s strength and the sales force managed to generate US$1bn in demand.

And a good bank is made of that: an ability to generate good deal ideas and execute them even at challenging times, even if the aftermarket is not always perfect.

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