As New York snatches Brazil IPOs, local exchange fights back
The head of Brazil’s only stock exchange is drawing a line in the sand after Brazilian companies defected to New York last year with more than $5bn of equity offerings.
Gilson Finkelsztain, chief executive officer of B3 SA-Brasil Bolsa Balcao, said he’s gearing up for a fight, especially as XP Investimentos SA – one of the hottest firms in the local finance industry – is considering a Nasdaq listing sometime this year.
“We are going to do everything for XP to list itself here in Brazil and not in New York; our commercial team and myself personally are going to fight for that,” Finkelsztain said in an interview. “XP is a flagship, a huge success story that proved there’s space for an independent brokerage firm in Brazil. It should list itself here.”
Finkelsztain faces obstacles. They include tax benefits for Brazilian firms based abroad and regulations that prevent such companies from being traded on the local exchange.
“We are working with the regulator CVM to make some rules more flexible, and they are very sensitive to what we call an exportation of the market,” Finkelsztain said.
The exchange chief conceded that Brazilian deals last year fetched better initial valuations by listing in New York. Offerings came from payments fintech firms PagSeguro Digital Ltd and StoneCo Ltd and education company Arco Platform Ltd, which raised more than $5.34bn in initial and secondary equity offerings on the New York Stock Exchange and Nasdaq last year without also listing their shares in Brazil.
XP, the nation’s biggest brokerage for middleclass investors, is looking to those success stories as it considers an initial public offering on the Nasdaq, according to a person familiar with the matter. The IPO would provide an exit for private equity investors such as General Atlantic LLC and Dynamo Administracao de Recursos Ltda, the person said, asking not to be identified because no official announcement has been made.
Because investors who specialise in the technology sector are concentrated in the US, many tech companies decide to list there. “This is an international trend, and affects companies from Japan to Israel to Australia,” Finkelsztain said. “And that is not good for Brazilian markets.” Even though B3 doesn’t have any local competitors, “we are competing with exchanges, with markets, all over the world,” he said.
There is also a tax incentive for companies to establish their domicile outside Brazil, and “that’s something that needs attention,” he said.
Finkelsztain said he’s working with CVM to develop “a more friendly environment” that would permit the Brazilian companies listed in New York to be traded in local markets as well. “So local funds wouldn’t need to buy dollars and go to US markets to buy shares from those local companies,” he said. B3 could earn a fee for each such trade.
Local companies domiciled abroad with more than 50% of revenue coming from Brazil aren’t allowed to issue BDRs, Brazil’s version of American Depositary Receipts, Finkelsztain said. One solution would be to allow those companies to list in Brazil simultaneously, he said.
To increase the attractiveness of local IPOs, B3 is also considering “confidential filings” for smaller companies. In those transactions, the company can back out if the market turns against it or the price is unattractive, without suffering the damage to its reputation that a public retreat might spur.
Finkelsztain said some Brazilian companies have tried to “disguise themselves as tech companies” when they list in the US, to piggyback on that industry’s cache with investors. “But investors will soon realise that, and then the firms will have problems,” he said.