Brazil: In “desert” of IPOs, B3 resumes movement with privatization auctions

RIO DE JANEIRO, BRAZIL – In the first months of 2022, the bell that marks the arrival of a new business to the stock market remained silent, given the volatile scenario because of the war between Ukraine and Russia and the proximity of the elections. What made up for part of this “IPO desert” for the Brazilian Stock Exchange (B3) were the auctions of public assets.

No less than 15 such events were held at the traditional old Bovespa venue in downtown São Paulo in the first three months of this year.

These 15 auctions held at B3 are expected to generate R$8.8 billion (US$1.8 billion) in private investments in ten Brazilian states, privatizing public services such as sanitation and lighting.

The number of auctions of public assets is much higher than last year: in 2021, the first three months of the year had two auctions; in the same period in 2020, there was only one event.

The Exchange has been acting as a bidding advisor for 30 years since the privatization of companies such as Usiminas and Companhia Siderúrgica Nacional (CSN).

The segment represents a relief at a bad time for business startups at the Exchange, but the auctions are nowhere near enough to compensate for the revenues that B3 would have with a stock offering.

This type of auction represents only a fraction of B3’s total business, although the company is starting to plan ways to increase this revenue.

In the balance sheet for the fourth quarter of 2021, revenues from this service are not open because they are included in the line “others”, which corresponded to R$37.3 million in the period, representing only 1.5% of B3’s total revenues in the period, which totaled R$2.4 billion.

Despite being of little relevance, the “others” line of the Exchange’s balance sheet grew by 24.8% in the last three months of last year, considering the comparison with 2020.

ROOM FOR GROWTH

The superintendent of bidding processes at B3, Guilherme Peixoto Barboza, says that the old Bovespa got involved in the auctions precisely because some of the nationalized companies in the past held shares traded on the market. The current B3, it is worth remembering, is the result of the union of the former Bovespa, Rio Stock Exchange, BM&F, and Cetip.

“Today, this activity (of public asset auctions) is more recurrent. With this, B3’s advisory area, which we have had since 2017, started to have this service more widespread. Before, we used to do it for the federal government and some states. Now, we are serving even municipalities,” explains Barboza, who is responsible for hitting the hammer and announcing the winner of the disputed asset on auction day.

According to the B3 executive, there is room for the sector to grow within the Brazilian Exchange. Today, the area serves only the public sector, but auctions involving the private sector are already being negotiated. One of the possibilities is the sale of carbon credits; another possible line is tax credits. “We have some discussions; we have conditions to do new projects this year,” comments Barboza.

CUSTODY

The work of the Exchange in advising tenders starts well before the day of the auction itself. When the federal government issues an edict for a highway bidding process, there is a date set for interested parties to submit all the documentation. All this paperwork, often brought by lawyers in the classic black suitcases, is delivered to the B3, which is responsible for analyzing everything and validating the bidder’s participation or not.

B3 also provides custody for the guarantees prepared by the auction participants, such as guarantee insurance or treasury bonds. “B3 is the manager of the guarantee given by the bidder until the contract is signed,” he explains.

But what if there is a stock offering on the same day as a bid when the market returns to normality? According to B3, the chance of “conflict” is small since the stock exchange debuts usually occur in the morning, while the auctions are held in the afternoon.

With information from Estadão

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