Dormant Argentina IPO market prepares for 2018 awakening

Bloomberg

Argentina’s IPO market hasn’t had quite the jolt some investors were expecting. A year and a half after President Mauricio Macri took office, new share sales are slow to take off. Just one company has completed an international initial public offering. The delay comes as private companies wait for their valuations to rise, while taking advantage of their low leverage: Argentine corporates sold about $10 billion in debt over the past 18 months while Merval index valuations are trading at a relatively low level versus their MSCI emerging market peers.
“Issuers are looking to see if their valuations are the highest they can be,” said Daniel Patron Costas, head of investment banking at Banco Santander Rio SA. “The IPO boom might not be in 2017, but 2018 should be the key year.”
About a dozen new share offerings are expected over the next 18 months, mostly in 2018, and in particular in the energy, infrastructure and agribusiness sectors, he added. Santander Rio’s investment banking unit headcount rose “significantly” in the past year and may continue to grow as activity rises.
Investors are moving past the disappointment after MSCI Inc. last month delayed a decision on whether to upgrade Argentina to emerging market status by at least a year, saying that it needed confirmation that reforms were “irreversible,” despite Macri having already removed capital controls. Analysts at five investment banks from JPMorgan Chase & Co. to Credit Suisse Group AG had forecast the country would be included in the index.
“I think there was a lot of eagerness on Argentina,” said Ricardo Cavanagh, head of equity research at Banco Itau Argentina SA. “Of course it would be great to be included in the index, but ultimately the decision doesn’t change the fundamentals, so we’ll be patient.” The evidence of improving fundamentals may be found in follow-on stock sales rather than the one IPO during Macri’s tenure.
That one new offering came when Grupo Supervielle SA snapped Argentina’s two-year IPO drought in June 2016, raising $280 million in New York and Buenos Aires. In local follow-ons, alfajor-maker Havanna Holding SA raised $10 million and lemon exporter SA San Miguel AGICI y F kicked off 2017 with a 706 million peso ($40 million) sale.