Mobius Spurns Brazil Share Offers as Gol Seeks Sale

By Telma Marotto and Francisco Marcelino

Sept. 8 (Bloomberg) -- Brazilian companies lining up to sell stock after this year’s 51 percent surge in the Bovespa index are offering “low quality,” overpriced shares, said Templeton Asset Management Ltd.’s Mark Mobius.

At least 12 companies filed to sell equity in Brazil since July 31, including Gol Linhas Aereas Inteligentes SA, the nation’s second-biggest airline, and Rossi Residencial SA, the sixth-largest homebuilder by assets. Only one company, the iron ore producer now known as Vale SA, sold stock in the second half of 2008 before an eight-month drought in offerings.

“The new share sales that are coming out in Brazil are of relatively low quality and priced far above fair value,” Mobius, who oversees about $25 billion as Templeton’s executive chairman, wrote Sept. 2 in an e-mail response to questions. “We are not planning to buy any of the pending offerings we have seen thus far but it all depends on the final pricing.”

Brazilian companies are returning to the market as stocks rally on prospects record-low interest rates and rising prices for the country’s commodity exports will fuel growth in Latin America’s largest economy. The national statistics agency, known as IBGE, will say on Sept. 11 that gross domestic product grew between April and June for the first time in three quarters, according to economists surveyed by Bloomberg.

Bovespa Valuations

The Bovespa’s gain sent the valuation for the benchmark index last month to 24 times the reported earnings of its companies, the highest in at least five years. The MSCI Emerging Markets Index fetches 19.3 times profit.

“I can’t see right now anything that makes me think valuations will go up more than this,” said Carlos Camacho, who helps manage about 3 billion reais ($1.6 billion) at GAP Asset Management in Rio de Janeiro.

The Bovespa increased 1.5 percent today to 57,498.19 as of 9:28 a.m. New York time.

Brookfield Incorporacoes SA, the Rio-based real-estate developer formerly known as Brascan Residential Properties SA, said today it plans to raise as much as 700 million reais in a primary stock offering.

Pending IPOs

Share sales pending in Sao Paulo include initial public offerings of Rio de Janeiro-based Cetip SA - Balcao Organizado de Ativos & Derivativos, Brazil’s biggest clearing house; Tivit Terceirizacao de Tecnologia e Servicos SA, a Sao Paulo-based computer-services company; and Direcional Engenharia SA, a homebuilder based in Belo Horizonte. They follow Cia. Brasileira de Meios de Pagamento, the processor of Visa Inc. payments known as VisaNet, which raised 8.4 billion reais in a June IPO that set a record in Brazil.

Cetip, Tivit and Direcional declined to comment on their sales because of the so-called quiet period before the offering, according to spokeswomen for the companies.

Barueri-based VisaNet’s initial share sale was the first in a year. There were only four new listings in 2008 as the global financial crisis deepened, compared with a record 64 in 2007. Almost 80 percent of the IPOs in Brazil since the beginning of 2006 trade below their offering price, according to data compiled by Bloomberg.

“In the past, the way to do well from deals in Brazil was to be very demanding in valuation and very skeptical and only participating in a few deals,” said Urban Larson, a Latin America portfolio manager at F&C Management Ltd. in London, who oversees about $450 million in shares. “There’s some very good companies that have gone public in Brazil in the last few years and it’s possible to do quite well, but it’s also a good idea to be cautious in looking at these deals.”

Economic Growth

Alberto Kiraly, a vice president for the National Investment Bank Association in Sao Paulo, said companies selling shares now will benefit from the country’s economic rebound.

“All these companies should appreciate as they are closely linked to local demand,” Kiraly said. “And the economic prospects suggest higher consumption and more credit available for purchases.”

Brazil’s GDP grew 1.7 percent in the second quarter from the previous period, according to the median estimate of 26 economists surveyed by Bloomberg. It will shrink 0.16 percent in 2009 before expanding 4 percent next year, a central bank survey of 100 economists published today showed. That’s more than economists’ 2010 growth forecasts for Chile, Mexico and Argentina, according to Bloomberg data.

‘Bullish’ Sentiment

“People selling those shares see an opportunity to obtain a high price at this time when sentiment is bullish,” Mobius, 73, wrote in the e-mail. The Singapore-based investor, voted among the “Top Ten Money Managers of the 20th Century” by the Carson Group, said in July that Brazil is his top pick among emerging-market countries after China. He declined to comment on specific companies offering shares.

Companies selling stock “offer good opportunities for investors who want to be exposed to Brazilian local economy,” said Guilherme Figueiredo, who helps oversee 1.7 billion reais as director at M Safra & Co. in Sao Paulo. “That said, I still think that the market is very sensitive and investors will look carefully into each company to assess valuation, earnings.”

Rossi, up 217 percent this year, is trading 52 percent below the 25 reais price at which it sold shares in February 2006. The Sao Paulo-based company said Sept. 1 it plans to sell up to 600 million reais of common stock. Three analysts rate Rossi a “buy,” six rate it “hold” and two recommend selling the shares, according to Bloomberg data.

Gol Offering

Gol, which said on Aug. 25 it is seeking to raise up to 650 million reais in a share sale, is down 32 percent since selling shares for 26.57 reais in a June 2004 initial offering. It has three analyst “buy” ratings, two “holds” and two “sells.”

Sao Paulo-based Gol and Rossi said in e-mailed statements that they can’t comment on the share sales, citing the quiet period.

“There’s been a housing boom, an airline boom, an everything boom in Brazil since 2006 and here they are raising money below what they raised in the past,” said Christopher Palmer, who oversees about $5 billion as Gartmore Investment Management Ltd.’s London-based head of global emerging markets. “How would you feel if you were one of those investors who invested in 2006?”

Markets

The Bovespa index fell 1.8 percent to 56,652.28 last week, led by Banco Nossa Caixa SA, which dropped 8.9 percent. MMX Mineracao e Metalicos SA gained the most in the measure, advancing 5.5 percent.

The yield on the local-currency zero-coupon bonds due January 2011 fell three basis points, or 0.03 percentage point, to 9.8 percent in the week. The real gained 2 percent to 1.8442 per U.S. dollar from 1.8812 on Aug. 28.

The following is a list of events in Brazil this week:

Event                                                  Date
FGV CPI IPC-S Inflation Index - Weekly                 Sep 8
Weekly Trade Balance                                   Sep 8
FIPE Consumer Price Index - Weekly                     Sep 9
FGV IGP-DI Inflation Index - August                    Sep 9
CNI Capacity Utilization - July                        Sep 9
Monetary Policy Meeting Minutes                        Sep 10
IBGE Inflation Index IPCA - August                     Sep 10
FGV Preview Inflation IGP-M - Sep. 10                  Sep 11
Gross Domestic Product - 2nd Quarter                   Sep 11

To contact the reporter on this story: Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net