Alfredo Setúbal - Chairman, Brazilian National Association of

Brazilian Capital Markets Trends
Alfredo Setubal
Chairman
ANBID-Associação Nacional dos Bancos de Investimento
Executive Vice-President / Member of the Board
Itaú Holding
Public information
Agenda
•
Recent developments
•
Overview of the Brazilian Capital Market
•
Capital Markets trend
Agenda
•
Recent developments
– Self-regulation
ANBID: Public Offerings Code
BOVESPA: New Market
Regulation
•
Market
•
Capital Markets trend
ANBID’s Self-Regulation Code
1998 and 1999
ANBID enacted the Capital Markets’
Self- Regulation Code, which
established the same organization
patterns verified overseas to the
Brazilian market environment
Further and stricter rules in
comparison to State rules and
regulations;
Broader Disclosure range: MD&A,
business and economic sector
information, etc;
Risk factors
2002
First Code’s review aimed at
incorporating into the Code the
deliberations, recommendations and
rulings of the Self-Regulation
Council;
ANBID’s Self-Regulation Code
2005
Enhances Corporate Governance;
ANBID’s Affiliates: only Public Offerings with ANBID’s
seal;
Due diligence;
Activities’ segregation principle;
Repricing Prospectus;
Incentives arbitration as a solution for conflicts;
Comfort Letters; Legal Opinions;
Joint liability;
Stimulates Market Maker’s activities;
Practices and adhering description: Treaties,
Conventions, Environmental Protection, Cultural and
Social Projects;
Trade Blockings for secondary offerings in case of
prospectus waiver;
Obligation to use ANBID’s seal in all offerings’
publications;
In loco oversight, in case of reported conduct.
2006
Simplified Debentures
New Market - BOVESPA
Level II
Level I
Minimum 25% float;
Public Offerings favoring capital dispersion;
Better quarterly reports;
Transparency in offerings made by the
controlling shareholders/directors;
Disclosure of shareholders agreements and
stock options programs;
Annual calendar of corporate events;
Shareholder Meetings summoned with 15
days in advance;
Forbiddance to issue partes beneficiárias;
Limited percentage of preferred shares.
New Market
Level I +
Level II +
Board of Directors term of 1 year;
Only voting shares;
Annual reports in US GAAP or IAS GAAP;
Tag along – all common shares must have the
same treatment granted to the controlling
shareholder’s shares in the event of sale of the
company’s control, and preferred shares are
entitled to a minimum amount of 70% of the
amount paid by shares representing a
controlling interest in the company;
In Public Offerings, the issuer must (i) grant
access to all investors; or (ii) distribute at least
10% of the issue to non-institutional investors;
Tag along – All shareholders are granted the
same conditions extended to the controlling
Preferred shares have voting rights in the event shareholders in the event of sale of the
of mergers, spin-offs and takeovers, or company’s control.
approval of agreements between the company
and entities comprising the company’s group,
as well as in other matters in which there might
be conflicts of interest between the company
and its controlling shareholder;
Offering by the shares economic value in the
event of Level II voluntary dismissal or retreat
of public negotiation environments.
Arbitration Chamber for dispute resolutions.
Innovations brought by Instruction CVM Nr. 400
• Broader disclosure requirements in Public Offerings’ Prospectuses;
• Quiet period and blackout period rules;
• Registration’s or registration requirements’ dismissal;
• Securities’ distribution programs (Shelf Registrations);
• Price stabilization agreements;
• Offerings for subscriptions 15% higher than the initially registrated offer;
• Possibility to increase the initially made offer in up to 20% (“Green Shoe”);
• Possibility to consult potential investors (“Market reading”);
Agenda
•
Recent developments
•
Market: Public Offerings
– Public Offerings Statistics
– Overview of the Brazilian Equity Capital Markets
– Overview of the Brazilian Debt Capital Markets
•
Capital Markets Trend
Public Offerings Statistics
Total Registrations with CVM vs Ibovespa Points
45.000
40.000
50,000
35.000
30.000
40,000
49,321
30,000
20.000
15.000
20,000
28,687
10.000
10,000
-
25.000
8,535
2.002
3,968
2.003
5.000
9,229
2.004
2.005
Source: CVM
Registros CVM
Registrations
CVM
Ibovespa
IbovespaMédio
Average
Oct2006
Acum.
Out/06+ +
Analysis
Análise
Points-IBVSP Average
Registrations CVM-US$ Milllion
60,000
Issue Distribution 2006
Participation - Breakdown by Amount
Until Oct-06
Securitização
Securitization
8,6%
Aç
õe s
Equity
26,0%
No tas
Commercial
Pro m
is s ó rias
Papers
4,1%
Debentures
De
bê nture s
61,3%
Source: CVM
Foreign Investments Inflow
Decreasing interest rates and foreign inflows have propelled the Ibovespa to a new
level...
Foreign Investments Inflow and Ibovespa
41,048
8,056
3,004
2,948
22,444
1,438
406
338
(1,124)
1,899
1,159
651
279
(945)
566
372
(1,523)(1,465)
(2,702)
(5,348)
2004
1Q05
2Q05
Ibovespa
3Q05
4Q05
Emerging Markets Exposure (US$ mm)
1Q06
2Q06
3Q06
4Q06 TD
Latin America Exposure (US$ mm)
Source: Bloomberg and AMG as of November 7th, 2006
… however, jitters regarding US monetary policy have severely impacted these
inflows during the 2nd and 3rd quarters
Overview: Equity Capital Markets
Strong Capital Markets Momentum Since 2004
41,048
22,244
12.3
439
6.7
6.8
3.8
3.0
5.6
1.3
194
3.0
1.7
2004
2005
2006 YTD
# of IPOs
8
# of IPOs
10
# of IPOs
21
# of Follow-ons
6
# of Follow-ons
9
# of Follow-ons
15
IPOs Volume (US$ billions)
Follow-ons Volume (US$ billions)
Ibovespa
Country Risk (Global’27 Spread vs. Treasury)
Source: Offering Memorandums and Bloomberg, as of November 7th, 2006
… have led to an unprecedented number of equity offerings totaling more than
US$22.1 billion since 2004
Recent Offerings: Geographic Distribution
International demand is critical for a successful offering
Geographic Distribution
59%
73%
74%
7%
7%
20%
19%
13%
28%
2004
2005
Brazil Institutional
Source: Itaú BBA and public announcements
Notes:
1 Includes all 144A / Reg S offerings since 2004
2 Up to November 7th
Brazil Retail
2006 YTD 2
International
Recent Offerings: Investor Universe
A few key investors have had a significant participation in recent offerings …
Investor Universe1
Top 30 Investors
246
91%
1
78%
2
71%
174
3
69%
4
53%
38%
120
61%
51%
55
32
27
17
13
38%
33%
2003
2004
Brazil
50% of Volume
18%
17%
11
2005
2006 YTD 5
International
80% of Volume
Source: Itaú BBA
Note:
1 Includes the following offerings: Suzano, CCR, Natura, Gol, Dasa-IPO, CPFL,
Suzano Petroquímica, Energias do Brasil, Tractebel, Vivax, Gafisa, TOTVS,
Duratex and DASA-Follow-on
Source: Itaú BBA
Notes:
1 Includes Suzano’s follow-on offering
2 Includes CPFL, Gol, CCR, Suzano Petroquímica, Natura and Dasa offerings
3 Includes EDP and Tractebel offerings
4 Includes Dasa, Eletropaulo, Profarma, Duratex, Perdigão, CSU, TOTVS, Vivax,
Terna and Gafisa offerings
5 Up to November 7th
… with the top 30 accounting, on average, for 73% of the
surveyed offerings’ order books
What Investors are Buying?
Liquidity
Growth
Adequate Initial Liquidity with Potential
for a Follow-on
Average offering volume:
US$261 million1
Governance
Superior Corporate Governance3
High Growth
32
2
42%
35%
2
Stake Sold
1
37%
6
EBITDA CAGR 2 years
prior to IPO
Source: Itaú BBA, Research Reports and Offering Memorandums
Notes:
1 Average of all IPOs since 2004
2 Average of all IPOs since 2004 until MMX offering, priced on July 20th
3 Includes all IPOs since 2004
EBITDA CAGR 2 years
after the IPO
0
After Market Performance of Recent IPOs
Investing in Brazilian IPOs has been overall lucrative
Appreciation 3 months after IPO net of Ibovespa1
106%
70%
37%
14%14%
5% 6%
-10%-9% -9%
-15%-15%
-19%
-22%
-24%
-28%
-6% -6% -6% -5% -4%
17%18%
14%16%
18%19%
21%21%21%22%
8% 9%
-3% -1%
Source: Economática as of November 7th, 2006
Note:
1 Medial, Klabin-Segall, Santos Brasil, M. Dias Branco, Brascan, Profarma and Terna include year-to-date performance due to lack of history
24%
28%
Brazilian Debt Market – Outstanding Volume
Given the high level of public debt, the Brazilian debt market is dominated by the
government bond market …
Outstanding Volume of Public Debt (US$ billion)
Outstanding Volume Breakdown
555
495
(SEP 2005)
NTN-B
3%
2
Others
8%
NTN-C 1
8%
378
LFT 3
55%
322
LTN 4
26%
291
234
(SEP 2006)
NTN-B 2
15%
Others
6%
LFT 3
42%
NTN-C 1
6%
2001
2002
Source: National Treasury
Notes:
1 Indexed to IGP-M
2 Indexed to IPCA
3 Indexed to CDI (SELIC)
4 Fixed rate
2003
2004
2005
Sep 06
set-06
LTN 4
31%
...most of which are still inflation indexed
Government Bonds – Maturity
Despite a recent improvement, public debt average maturity is still relatively short
Public Debt- Average Historical Maturity (years)
Government Debt – Average Maturity– SEP 2006 (years)
3.32
6.49
2.94
2.67
4.85
2.49
2.36
2.29
1.71
1.65
0.79
2001
2002
Source: National Treasury
2003
2004
2005
Sep 2006
NTN-C
(IGPM)
NTN-B
(IPCA)
LFT (Selic)
LTN
NTN-D
(USD)
Government Bonds – Issuance
Recent issuance has been mostly fixed rate or indexed to inflation …
Average Daily Volume (US$ billion)
59%
26
11
42%
47
80
85
2nd Semester 2005
1st Semester 2006
42
1st Semester 2005
Source: National Treasury
SELIC Indexed Bonds Issuance (R$ billion)
Indexed Bonds / Total Public Debt
Other Government Bond Issuance (R$ billion)
… thus, reducing significantly the government floating rate exposure
Corporate Bonds Issuance of Debentures and Commercial Papers
Strong growth in the primary issuance market since 2003
Debenture / CP – Total Issuance (US$ billion)1
GR
CA
=
.
71
6%
Debenture / CP – Number of Issuances1
5
2.1
9
1.1
12
22
0.8
5.9
0.7
3.3
2004
Debentures
34
28
16
1.7
2003
37
6.5
2005
Oct 2006
2003
Commercial Papers
Source: CVM
Note:
1 Does not consider issuances of companies of Arrendamento Mercantil in 2005 and 2006
2004
Debentures
Source: CVM
2005
Oct 2006
Commercial Papers
Overview: Debentures
US$ Million
30,223
17,102
4,666
1,775
2.002
Source: CVM
2.003
3,304
2.004
2.005
Acum. Out/06 +
Oct 2006+
Análise
Analysis
Corporate Bonds – Maturity and Size
Increased investor confidence has resulted in larger sizes and longer dated
maturities...
Debentures – Average Maturity (years) and Average Size per Issuance (US$ million)
5.5
5.1
5.2
208
141
3.9
74
60
2003
Source: SND
2004
Size
2005
Oct 2006
Maturity
Corporate Bonds – Liquidity and Outstanding Volume
... however liquidity remains low
Debentures – Outstanding Volume (US$ billion) and Average Daily Volume per Issuance (US$ million)
55.6
36.3
31
18
14.7
16.8
21
15
2003
2004
Outstanding Volume
Source: SND
2005
Liquidity
Oct 2006
Securitization – Issuance
Fast development of the securitization market…
ABS – Total Issuances (US$ billion)
ABS – Number of Issuances
47
3.1
44
3.5
30
1.6
11
0.5
2003
2004
Source: CVM – Registered Offerings
2005
Oct 2006
2003
2004
2005
Oct 2006
Source: CVM – Registered Offerings
...since the publication of ABS regulation in 2002
Agenda
•
Recent developments
•
Market
•
Capital Markets Trend
– Public Offerings’ Scenario
– Secondary Markets’ Transparency
– Securitization Increases
– New investments by private equity funds
– Investment Grade
Sustainability of the Virtuous Cycle?
Favorable macroeconomic situation should continue to fuel growth in the economy and
in the equity capital markets
Ibovespa Next 12 Months Forecast1
Potential
Upside
28%
52,435
51,061
41,048
Risks
Domestic:
►
Flexible fiscal and monetary policies
►
Elections
►
Economic growth
►
External crises
External:
Ibovespa
Market
Consensus
Itaú Corretora
►
Increase of USA inflation and interest rates
►
Decrease in USA economic growth rates
►
Reduction of global liquidity
►
Chinese economy (?)
Source: Itaú Corretora
Note:
1 Considers Ibovespa as of November 7th, 2006
Main risks are linked to uncertainties on US fiscal and monetary policies
Public Offerings’ Scenario
•
Increased number of Public Offerings
– Equity
– Debt
•
Favoring of Capital Markets upon decrease of the Brazilian prime rate
•
Terms Extension
•
Increasing resources for investments – high Liquidity
•
Increasing foreign investments upon investment grade perception
Robust Offering Pipeline
The equity capital markets has become a reliable source of financing
2006 – Priced Offerings
IPOs
Date
COPASA
Vivax
Gafisa
Company
TOTVS
Equatorial
American Banknote
CSU
BrasilAgro
Lupatech
GP Investments
Datasul
MMX
Abyara
Medial
Klabin Segall
Santos Brasil
M Dias Branco
Brascan Residencial
Profarma
Terna
1Q06
1Q06
1Q06
1Q06
1Q06
2Q06
2Q06
2Q06
2Q06
2Q06
2Q06
2Q06
3Q06
3Q06
3Q06
4Q06
4Q06
4Q06
4Q06
4Q06
4Q06
TOTAL
Follow-ons
Filed with the CVM
Volume
(US$ mm)
372
242
438
132
215
246
226
161
276
217
319
138
511
75
342
224
391
170
494
186
259
Iochpe-Maxion
1Q06
154
1Q06
468
TAM
1Q06
721
Dasa
1Q06
307
Duratex
2Q06
285
Saraiva
2Q06
86
Submarino
2Q06
435
Localiza
2Q06
185
Randon
2Q06
111
Porto Seguro
2Q06
89
Banco do Brasil
2Q06
1,021
Cyrela
3Q06
384
CESP
3Q06
1,461
AES Eletropaulo
3Q06
612
Perdigão
4Q06
374
6,693
TOTAL
Expected
Volume
(US$ mm)
Odontoprev
4Q06
160-185
São Carlos
4Q06
250-290
Positivo
4Q06
175-200
Brasil Ecodiesel
4Q06
300-400
Camargo Corrêa
1Q07
175-200
Cremer
1Q07
250-290
Tecnisa
1Q07
175-200
CMS Energy
On hold
150-175
CPM
On hold
225-260
GVT Holdings
On hold
300-350
Satipel
On hold
200-230
Rede
On hold
300-350
Autotrac
On hold
325-375
TOTAL
2,985-3,405
5,634
Rossi
TOTAL
IPOs
Estimated
Date
12,327
TOTAL
2,985-3,405
Additionally, other 22 equity offerings are expected to come to market in the next few
months, representing a total amount between US$3.4 and US$5.0 billion
Secondary Markets’ Transparency
Better Liquidity expectations for the Fixed Income Corporate Securities
•
Transparency concerns in connection with the corporate debt sector.
•
Importance of risk assessment by rating agencies.
•
Better asset pricing.
Securitization Increases
•
Increasing trend within Brazil;
•
Growing Real Estate Sector:
– Issues by the real estate sector are still incipient vis-à-vis the sector’s
potential;
– Securitizations are important sources of funding;
– Segregated assets enable securitization.
New investments by private equity funds
•
Private Equity Funds have been granted profits lately;
•
Investment Opportunities:
- Companies with good growth perspectives;
- Necessity of funding to expansion.
•
Attractive return rates
•
Investment Grade perception
Private equity funds’ evolution
Private Equity Funds' registrations (Unit Shares)
US$ Million
1,406
875
466
44
2.003
Source: CVM
2.004
2.005
Acum.
OctOut/06
2006+ +
Analysis
Análise
Investment Grade
FEATURES
BENEFITS
Bigger number of investors: some countries
restrict investments in “non- investment
grade” markets
Bigger impacts:
Decreasing funding costs;
Private equity investments
Higher valuation of hard assets
Real Estate investments
Equity markets