Carrefour’s Brazil IPO to hand banks highest fees in 8 years

Bloomberg

Brazil’s long-suffering IPO bankers are headed toward their biggest payday in eight years.
This month’s initial public offering for Carrefour SA’s Brazil unit will generate almost 140 million reais ($42 million) in fees for a group of local and international banks, based on a regulatory filing from the French grocery company. That tops the 119 million reais paid by BB Seguridade Participacoes SA for its 11-billion-real IPO in 2013 and is the most for a deal bigger than
$1 billion since October 2009.
The Carrefour pot gets split between Banco Itau BBA SA, the lead bookrunner on the offering, and the rest of the sales team: Bank of America Corp., Goldman Sachs Group Inc., Banco Bradesco BBI SA, Banco Santander SA, JPMorgan Chase & Co. and BNP Paribas SA.
Political turmoil and a record-breaking recession prevented many large Brazilian companies from going public, with just four IPOs completed from 2014 through 2016. Things started turning around this year, with 5.82 billion reais already coming to market since January, surpassing the total for all of the previous three years combined. The Brazilian airline Azul SA’s $572 million share sale in April is this year’s biggest so far.
The IPO for Carrefour’s Atacadao SA unit could raise as much as 7.6 billion reais if underwriters exercise their option to sell additional shares, according to the filing. Carrefour and Peninsula, an investment company controlled by billionaire Abilio Diniz, plan to sell as many as 400 million shares for 15 reais to 19 reais each, the Boulogne-Billancourt, France-based company said in a statement in June. Pricing for the deal, which has been in the works for more than three years, is set for July 18.

Atacadao’s Results
Brazil has been a key factor in propping up Carrefour’s earnings in recent years as growth in France fizzled. Quarterly growth in same-store revenue in Brazil has ranged from 5.6% to 13 percent since Q3 2013, significant growth for a nation muddling through a recession. Atacadao’s adjusted net profit rose 53% to 1.17 billion reais in 2016.
Carrefour’s IPO, which will also include its stake in Banco CSF, will be the first major test of investors’ willingness to bet on Brazil equity markets after a political crisis ensnared President Michel Temer in May and threatened to derail a reform agenda designed to pull Latin America’s largest economy out of its
deepest recession on record.
No new IPOs have priced since then, though at least three companies have filed plans for initial offerings: renewable-energy firm Omega Geracao SA, reinsurer IRB Brasil Resseguros SA and pharmaceutical company Biotoscana Investments.
While the Carrefour payout is large in dollar terms, it lags behind other recent IPOs as a percentage of deal size. Banking fees represent 2.75% of the Atacadao offering, compared with 3.75% for Azul and 4.41% for car-rental company Movida Participacoes SA. BB Seguridade’s IPO fees were 1.17% of the total.
“As a general rule, banking fees rarely represent more than 4% of the offer’s size,” Sampaio said. “For larger, more complex IPOs such as Carrefour, banks tend to demand a higher amount of fees. But as offer size tends to be bigger, the relative amount drops.”
Credit-card company Cielo SA accounted for single biggest fee for a major Brazilian IPO in past 10 years, with its $5.1bn equity sale in 2006. Cielo’s bankers took in 275mn reais in fees at the time. Brazil’s largest-ever IPO, Banco Santander Brasil’s $7.55 billion October 2009 offering, generated 193 million reais in fees.