Pension Turbulence Casts Shadow Over Brazilian IPOs

The Bolsonaro administration's reform agenda faces hurdles.

Growing uncertainly over the outcome of Brazil’s pension reform has thrown a wrench into theIPO market, which had gotten off to a good start this year.

“I don’t think the market is going to do that well, if you ask me today,” says an equities analyst in São Paulo. “But maybe in the second half it will be better.”

Economy Minister Paulo Guedes expects the lower house to approve the pension reform package in early July, paving the way for the legislation to win the Senate’s blessing and cut $302 billion off the public finance bill.

Nevertheless, growing spats in Brasilia are hurting economic prospects. Growth, which appeared to strengthen in the first quarter, is now forecast to reach only 1.5% this year versus a 2.2% earlier forecast.

Still, some analysts remain hopeful that this year’s IPOs can eclipse last year’s. Four large deals came to the fore in the first five months of 2019, compared to three in the same period last year.

Analysts expect the utilities and retail sectors to be hot. Already, Spanish Iberdrola-owned Neoenergia has resurrected plans to float in São Paulo later this year. The energy company owns 52.4% of Brazil’s second-largest power distributor and plans to retain control of the firm post-IPO, experts say.

Carrefour Brasil is also expected to pursue a follow-on offering, according to some analysts, though others cautioned choppy conditions could encourage the firm to derail the float.