Brazil’s IR road warriors
Brazilian issuers have always relied heavily on foreign shareholders, so overnight flights to the northern hemisphere are almost as familiar to IROs professionals as their own beds.
Over the last several years, however, as risk-averse investors looked for safer havens, Brazil’s IROs have had to work even harder to get their corporate stories across. And just in the last year, as the Brazilian market’s luster has dulled and investors have been unsettled by rising inflation and government intervention, these IROs have been in high demand at conferences and in meetings around the world, to help explain the macroeconomic picture in their home country.
‘We need some better targeting analysis before traveling to Asia’ – Fabio Cefaly, Natura Cosmeticos
‘They’re tough, tough, tough, those trips abroad,’ says Rogério Calderón, Itaú Unibanco’s IR chief, who estimates he spends around 12 weeks a year traveling outside Brazil. ‘People say, So glamorous! But it’s six, seven, eight meetings a day – then back onto the plane. Sometimes I don’t even venture outside the hotel.’
For most Brazilian companies, around 70 percent to 80 percent of their free float is in the hands of overseas shareholders, with the bulk of them in the US. Some of the biggest American fund managers, like Franklin Templeton Resources and BlackRock, even set up shop in São Paulo as they delved deeper into Brazilian stocks, with analysts stationed there to be closer to the companies they cover. When the global financial crisis hit in 2008, Brazil aggressively cut interest rates, which should have pushed investors toward equities. ‘Instead there were a lot of outflows because US investors needed to repatriate their money to cover losses and redemptions,’ explains Fernando Carneiro, Ipreo’s managing director for Latin America.
The last two years have seen continuous outflows from Brazilian equities, particularly among those foreign institutions investing locally, according to data from EPFR Global. In an already risk-averse market, Brazil has an added fear factor, with sovereign risk weighing heavily. Market participants say that puts even more pressure on IROs to reach out to their overseas investors.
Their mission is twofold: first to address the concerns of investors and help mitigate them; and second to find new investors. ‘At times like this, IROs should be intensifying their travel,’ says Nuno da Silva, head of Latin America for BNY Mellon Depositary Receipts.
In recent months Calderón has had to increase the time in investor meetings devoted to Brazil’s macroeconomic outlook. ‘I’ve been spending 70 percent-80 percent of my time in meetings talking about issues such as growth trends and interest rates,’ he says. ‘They’re very much macro meetings now.’
Targeting new shareholders is especially hard. ‘What’s more difficult now because of recent uncertainties is capturing new investors, so non-deal roadshows are more of a maintenance process than an expansion effort in terms of names,’ Calderón adds.
‘Brazilian IROs have to be that much more proactive now – plus their story changes,’ points out Justin Vieira, director of analytical services at Ipreo. ‘Now it’s not so much about how they’re positioned to profit from the growing Latin American middle class – issuers also need to convey how they’re insulated from risks such as inflation and a slowing growth rate.’
Natura Cosmeticos, Brazil’s leading cosmetics company, has historically been resilient through the country’s ups and downs. ‘We’re not connected to GDP, and that’s what we have to communicate when we meet with investors, especially when we are prospecting for new ones,’ says Fabio Cefaly, head of investor relations, who has noticed a much higher demand for macroeconomic discussion this year compared with 2012.
A ‘sentiment snapshot’ in Ipreo’s April 2013 BetterIR newsletter paints a gloomy picture. ‘Many people on the buy side and sell side are seeing a lot of uncertainty about the government’s regulatory framework,’ Carneiro recounts. ‘Things are iffy for the Brazilian market, with no GDP growth, low interest rates and inflation, and that accounts for a lot of people sitting on the sidelines. It’s a difficult scenario for Brazilian companies. They have to go off the beaten path to find investors.’
Of the four Brazilian companies interviewed for this article, none bar Itaú has ever been to Asia – but the other three are planning to go soon for the first time.
‘Asia is definitely an important new trend for Brazilian companies,’ Calderón believes. OdontoPrev had never thought about going to Asia on a roadshow but with 10 percent of its free float now in the hands of Asian investors, it has definite plans to go in the second half of 2013.
Natura, too, has gained some shareholders in Asia and has been getting feedback from the sell side that there are opportunities to travel there. ‘But we need to do some better targeting analysis,’ Cefaly says. ‘It’s a long trip, it’s expensive and, as we’ll be doing it for the first time, we’ll need to take senior management with us.’
Ipreo has observed increasing Asian interest in the Brazilian market. Certainly, Brazilian giants like Itaú Unibanco or Vale, which in 2010 added a listing on the Hong Kong Stock Exchange, have been IR pioneers in the region. With its huge hunger for commodities, Asia is a natural fit for Brazilian resource companies like Vale.
It should be noted that a lot of Asian institutions have the mass to take big stakes. For example, a group led by two of the world’s biggest sovereign wealth funds – Singapore’s GIC and China’s CIC – took a 15 percent stake in BTG Pactual, a Brazilian bank, ahead of its IPO last year.
As a bellwether stock in Brazil, Itaú attracts interest from sovereign wealth funds in Asia as well as the Middle East. ‘They have a very good eye on the long term. They really pay attention to the way we are driving our results for the future, not so much on what’s happening in that quarter,’ Calderón points out.
The long-standing Tokyo annual investor conference of Itaú BBA, the corporate investment arm of Itaú Unibanco, was expanded to Singapore in April 2012 and Taipei in 2013, making a good anchor for Itaú’s own investor relations team to visit the region. Sometimes Calderón adds a second trip in the second half of the year, and sometimes includes Shanghai and Beijing in his itinerary.
Despite apparent outflows of investment overall, many IROs, including Carlos Lazar, director of IR at Kroton Educacional, have seen an increase in invitations from sell-side firms to participate in onferences and do non-deal roadshows. Over the last two years Lazar has been traveling more and more, and 2013’s schedule has started out extremely busy. He spent one recent week in London, Frankfurt, Amsterdam, Rotterdam and Zurich.
‘In every single city, I found new investors trying to catch up on the history of the company,’ he says. For him, it’s plain why Brazilian companies have to travel so much: ‘We’re not geographically close to our investors, so we need to be as close as possible to them in other ways.’
Return of the ADR
The wave of big Brazilian IPOs that started in the 1990s relied on US-listed ADRs. By around 2006, when enough international investors had begun to trade in the local market and Brazilian bankers were keen to bring companies to market themselves, a surge of IPOs began to do very well with local offerings. In 2007, 64 companies listed on Bovespa, Brazil’s stock exchange.
That fervor didn’t last, though. There were only 11 IPOs in 2010 and 11 more in 2011. Last year’s IPO pipeline was well stocked but only four deals came to market. What worked in 2007 might not work in 2013, which is why fully registered ADRs may be surging back. Votorantim Cimentos filed in April to raise $5.4 bn on both the Bovespa and the NYSE with what could be Brazil’s biggest IPO of the year. Another two or three large deals have already filed with the SEC.
‘In the current environment, many companies are now considering dual listings, much in line with the model undertaken by many large Brazilian companies in the 1990s,’ says Nuno da Silva, head of Latin America for BNY Mellon Depositary Receipts. One obstacle, however, is a holdover from Brazil’s notorious financial operations tax (IOF), a 1.5 percent levy on the creation of ADRs. Companies are trying to raise capital but the tax poses difficulties for investors wanting to support them. Some in the corporate community believe the IPO backlog won’t be uncorked until the IOF is removed.
Rogério Calderón, head of IR, Itaú Unibanco
R$154 bn ($77 bn) market cap, 61 percent of float outside Brazil
Itaú’s IR executives are on the road beyond Brazil around 14-15 weeks a year. In 2012 they went to 21 foreign conferences. In Q1 2013 they attended seven, so this year’s projection is closer to 30. Calderón, who is also the corporate controller and acting CFO of Itaú’s international business, goes on nearly all the foreign trips.
Travel tip: ‘Every time we leave Brazil, it’s a long, overnight flight, so we plan non-deal roadshows around conferences and spend a whole week away,’ says Calderón. ‘Say there’s a conference Tuesday through Thursday. We’ll go overnight Saturday, arrive Sunday, do one-on-ones in the area on Monday, attend the conference then do more one-on-ones on Friday before heading home.’
José Roberto Pacheco, IRO, OdontoPrev
R$5.4 bn market cap, 80 percent-85 percent of float overseas
Pacheco spends 10 weeks of the year outside Brazil, attending more than 30 conferences, with his CEO accompanying him for two of those weeks. He does coast-to-coast US non-deal roadshows at least twice a year and goes twice to Canada. Pacheco’s favorite cities are Edinburgh, Boston, San Francisco and Chicago. ‘They know our story inside out and their level of research is tremendous,’ he explains. ‘It’s an absolute pleasure to visit cities where every meeting is different, with high-quality conversation.’
Travel tip: ‘Book far in advance and plan well ahead where you’re going to stay and who you’re going to see,’ advises Pacheco. ’It is not a normal type of traveling; it’s very demanding. Be prepared for the unexpected. You’ll come home exhausted but you will come home elated – with good news from all over the world.’
Fabio Cefaly, head of IR, Natura Cosmeticos
R$21 bn market cap, 80 percent of free float outside Brazil
Cefaly spends about 10 weeks overseas and does eight to 10 conferences a year in the US, the UK and elsewhere outside of Brazil. Natura also does two non-deal roadshows, with the CEO going to the US and the CFO going to Europe, then the next year they switch.
Travel tip: ‘The best meetings are always when we’re challenged to talk about the strategy of the company,’ says Cefaly. ‘Be prepared for people more focused on the medium to long term outside of Brazil compared with those in Brazil.’
Carlos Lazar, director of IR, Kroton Educacional
R$7.4 bn market cap, 65 percent of free float overseas
Lazar estimates he spends six weeks a year overseas. The best conferences of the calendar are the Latin America-focused ones in New York and London organized, respectively, by Brazil’s two big securities firms, Itaú BBA and BTG Pactual.
Travel tip: ‘As you’re traveling so far, and sometimes for a long time, you need to be certain you put as many meetings as possible in your agenda, and talk to as many people as possible,’ says Lazar. ‘You may feel like you’re talking and talking and saying the same thing, but you need to believe you’re going to see that person in your shareholder base soon.’