As New York snatches Brazil IPOs, lo­cal ex­change fights back

Gulf Times Business - - BUSINESS -

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.

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