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Brazil’s economy is weak, but its IPOs are still going strong

Brazil IPO
AP Photo/Felipe Dana
Baby, let’s go public!
By Gina Chon
Published Last updated This article is more than 2 years old.

Brazil’s GDP growth has been disappointing, but one company remains bullish on the economy: cement producer Votorantim Cimentos. The Brazilian company today filed information relating to its upcoming IPO, which will raise almost $5 billion in one of the largest public offerings of the year. That’s a sign that despite the weak economy, appetite for Brazilian public offerings is healthy.

In the US Securities and Exchange Commission filing, Votorantim said “increasing personal income levels, lower interest rates, the housing deficit and the implementation of significant infrastructure projects by the Brazilian federal government will drive opportunities for growth in the construction sector.”

There have already been twice as many public offerings this year (six) in Brazil as there were in all of 2012. And many of the world’s largest IPOs in 2013, including the biggest one so far this year, are coming from Brazil. In April, Banco do Brasil’s insurance unit, BB Seguridade, raised about $5.7 billion in its IPO. The biggest public offering so far this year in the US was for Zoetis, the animal health unit spun off from Pfizer, which raised $2.2 billion.

In contrast to the IPO market, Brazil’s central bank earlier this week disappointed investors by reporting a paltry 0.6% GDP growth in the first quarter. Brazil’s central bank also decided to speed up the pace of interest rate hikes to combat inflation, but higher interest rates could hurt Votorantim’s prospects. The Bovespa stock index fell by 2.5% on the GDP news, and is down by more than 12% so far this year.

That means that while Brazilian companies are raising billions in their IPOs, their stock may not do as well once they start trading. BB Seguridade’s shares fell on its debut by as much as 5%. But as long as Brazilian firms can successfully raise the capital they need through IPOs, they will likely keep on coming.

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