A stampede of initial public offerings and capital-raising on the Chilean stock exchange this year could slow its charge to record highs as investors sell holdings to make room for new issues.
The Santiago stock exchange has averaged two IPOs per year since 2006, but this year may see 10 or more new listings and at least eight capital increases as companies ramp up investments on a surge in regional growth and before an expected increase in interest rates.
-- Ten or more IPOs expected in record year for bourse
-- More than $5 billion in stock sales may hurt prices
Analysts doubt the local market can easily absorb a flood of new shares after a sharp sell-off in late January, sparked by investors freeing up cash for the auction of a $1 billion stake in electricity generator E-CL. "It raises doubts if there is enough liquidity to keep this glut of new shares from hurting performance," said BCI analyst Maria Jesus Bofill in Santiago.
Chile's main stock index was trading at around 4,700 points on Thursday, off its record highs over 5,000 in January. Chilean pension funds anchoring the local bourse divested a net $314 million from other stocks in January ahead of the E-CL offering and $119 million in March ahead of No 2 bank Banco de Chile's $500 million capital increase.
The rush to finance expansion through equity follows a rise in Chile's key central bank interest rate to the highest level in more than two years. The central bank has hiked rates to curb rising inflation expectations, driving up borrowing costs. Rate increases are set to continue, albeit at a slower pace.
Bofill said the local debt market is more crowded due to record public issues. The central bank is offsetting its $12 billion currency intervention with additional debt and the government said it would issue as much as $4.5 billion more in local bonds to help rebuild after a huge 2010 earthquake.
So more companies are turning to the local bourse for financing, attracted by the blue chip IPSA stock index's 38 percent rally last year to all-time highs above 5,000 points on bounding domestic demand. News of the IPOs compounded a rocky first quarter for the IPSA, which slid as much as 14 percent before paring losses to 6 percent on unrest in the Arab world and the return of foreign capital to developed economies in recovery.
"If all of the offerings announced for this year come through, they could hurt the IPSA's performance by about 5 percent, putting it around 4,950 or 5,000 points at year-end," said Elizabeth Palma, analyst at the Tanner brokerage in Santiago.
The IPSA's weekly MACD trend indicator has nearly confirmed the end of its sharpest downturn in more than a decade. But analysts say the index will struggle to sustain the pace of its 11 percent rebound from March lows if all the companies considering public offerings this year go through with plans.
The first new company to test the waters will be CFR Pharmaceuticals, which aims to raise $400 million on May 5. Soon after investors could see offers from Chile's top salmon farmer AquaChile and rival Australis Seafood, health care company Cruz Blanca Salud, industrial conglomerate Indura, builder Ingevec, furniture maker Rosen and several others.
The head of Chile's top brokerage LarrainVial, Manuel Bulnes, downplayed the risk to the IPSA, telling Reuters last month he expected the new offerings to attract capital from overseas, keeping pressure off other stocks. Bulnes said he sees at least six new companies opening on the local market in 2011, three of them advised by LarrainVial, but he doubted more companies will go ahead with IPOs if investor demand shows signs of flagging.
Meanwhile, eight companies on the local bourse have already announced capital increases, led by regional retailer Cencosud, which said it could raise up to $2 billion in new capital, and shipping line Vapores, which recently approved a $1 billion issue.
While the offers may reshuffle local equity portfolios, analysts do not expect them to draw investors away from fixed income assets, leaving the bond market largely unaffected. Between the capital increases and IPOs, the Santiago stock exchange could see more than $5 billion in additional shares this year, in line with booming activity in nearby peers like Colombia, which could see $6 billion in new issues in 2011.
Chile could outpace Colombia if the government sells stakes in four water utilities valued at $1.6 billion to help finance investments in state mining giant Codelco. Regional powerhouse Brazil is also expected to see a big year for IPOs after companies put sales on hold last year to avoid competing with oil firm Petrobras's $70 billion capital increase.
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