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Brazilian share offerings surge to decade high as M&A languishes

By Tatiana Bautzer and Carolina Mandl

By Tatiana Bautzer and Carolina Mandl SAO PAULO, Oct 11 (Reuters) - Brazilian companies are raising funds through share offerings at a decade-high pace, bolstered by record low interest rates, progress on macroeconomic reforms and signs of recovery after a long recession, even as M&A activity slumps. Companies from Petroleo Brasileiro SA to Localiza Rent A Car SA raised $17.1 billion in 34 transactions during the first nine months of 2019, almost triple the amount of the year-earlier period. The nine-month total exceeds the full-year amount for every year since 2010. M&A volume, which dropped by a fifth, fell in part due to competition with liquid capital markets, which gave companies alternatives to asset sales, as well as a sluggish economic recovery. But the rise in share offerings could have a positive effect on future M&A transactions. "After companies issue debt at a low cost or raise money offering shares, it is natural that M&A picks up as a consequence of well-capitalized companies," said Alessandro Zema, CEO at Morgan Stanley Brazilian unit. Bankers expect 50 equity capital-raising transactions related to Brazilian companies to be completed by year-end. The total so far included just four initial public offerings - sporting goods retailer Grupo SBF SA, power company Neoenergia SA, medical educator Afya Ltd and jewelry retailer Vivara Participacoes SA - but that could change, they said. "Follow-on offerings will dominate 2019, but I already see companies overcoming the IPO inertia and planning to list," said Fabio Nazari, global head of equity capital markets at Banco BTG Pactual SA, which advised on 21 deals this year. Even sectors such as homebuilders, retailers and banks which had not sold shares in recent years were back to the pipeline and planning IPOs, said Hans Lin, head of investment banking in Brazil at Bank of America. As for mergers and acquisitions, the bulk of the $31 billion deal flow was related to infrastructure and oil and gas, led by Petrobras divestitures. An auction of oil areas expected for early next month will create further momentum, said Eduardo Miras, head of investment banking at Citigroup. Petrobras was instrumental in both the largest capital markets share deal of the year and the biggest M&A transaction, raising $2.55 billion in the privatization of its fuel distribution arm Petrobras Distribuidora SA and $8.7 billion through the sale of gas pipeline company TAG to France's Engie SA. "Sales of Brazilian government assets will continue to play a key role in deals, either in share offerings or M&A," said Roderick Greenlees, global head of investment banking at Itau BBA. Finance Minister Paulo Guedes has been pushing for privatizations and asset sales which have raised $23.5 billion so far this year, according to ministry numbers. As the Brazilian benchmark interest rate Selic reached its lowest level on record, 5.5%, local investors are migrating from sovereign local bonds to riskier investments. Net inflows to equity and hedge funds this year totalled $21.78 billion through August, exceeding the total for all of 2018. Bankers such as Ricardo Lacerda, partner at BR Parners, also expect a pick-up in deals involving tech companies through next year, as Japanese investor Softbank Group Corp deploys capital from its $5 billion Latin American fund, launched in March. Below are the league tables for M&A and Equity Capital Markets transactions Equity Capital Markets* Itau, Bank of America, BTG leading in value and number of deals Advisor Deal value Number of ($ deals million) Itau Unibanco 2,503 18 Bank of America 1,926 14 Banco BTG 1,405 21 Pactual Citi 1,347 7 Morgan Stanley 1,270 12 Santander Corp 1,196 12 JPMorgan 1,190 8 Banco Bradesco 1,098 13 SA UBS 915 5 Banco do Brasil 876 9 Total 17,058 34 *Global Equity and equity-related- Brazil Mergers and acquisitions - Brazilian targets (Jan/Sept 2019) BR Partners, Citi, BTG leading in value and number of deals Advisor Deal value Number of ($ deals million) BR 11,875 9 Partners Citi 11,082 6 Morgan 9,685 4 Stanley Santander 9,334 6 Corp Evercore 8,682 1 Partners Bank of 6,112 8 America Rotschild 4,182 10 & Co Itau 3,992 23 Unibanco BTG 3,869 29 Pactual Goldman 2,235 4 Sachs Total 31,072 423 *Deals announced with Brazilian target. Ranking includes advisory and fairness opinions. Source: Refinitiv ($1 = 4.0816 reais) (Reporting by Tatiana Bautzer; Editing by Christian Plumb and Nick Macfie)