June 18, 2013 / 8:43 PM / 4 years ago

Brazil's Votorantim Cimentos scraps IPO as market conditions sour

SAO PAULO (Reuters) - Votorantim Cimentos SA, Brazil’s largest cement producer, and shareholders canceled a $4.8 billion initial public offering, a source with direct knowledge of the situation said on Tuesday, as market conditions worsened over the past few days.

Controlling shareholder Votorantim Participações was unwilling to sell its stock of Votorantim Cimentos below the suggested price range of 16 reais to 19 reais, said the source, who declined to be named because the decision has not yet been made public. The IPO, which, if concluded would be the world’s second-largest this year, was scheduled for Wednesday.

A second source said potential investors pledged to take part so long as shares offered a “large discount” relative to the bottom of the suggested range. If that happened, the value of Votorantim Cimentos would come well below that of Rivals such as Cemex SAB (CMXCPO.MX) and Cementos Argos SA CCB.CN.

Votorantim Cimentos and shareholders had planned to sell a combined 400 million units, which consisted of one ordinary and two preferred shares. The company did not confirm the suspension of the IPO plan.

The cancellation of the transaction highlights the delicate balancing act facing stock market newcomers in Brazil - offering investors attractive returns at a time when Latin America’s largest economy grapples with high inflation, rising risk aversion and flagging growth.

Speculation mounted in recent days that the transaction was struggling in the face of a stagnant economy in Brazil, an ongoing exodus of investors from the local equities market and the structure of the deal that offered little transparency to foreign investors. The benchmark Bovespa stock index .BVSP has shed 18 percent this year, while the currency is down about 8 percent.

The company had hired local investment bank Itaú BBA as well as Morgan Stanley & Co (MS.N), JPMorgan Chase & Co (JPM.N), Credit Suisse Group CSGN.VX and BTG Pactual Group BBTG11.SA to manage the transaction.

One large investor, who was approached last week by bankers involved in the deal, balked at Votorantim Cimentos’ plan to sell units, alleging transparency concerns, people with knowledge of the situation told Reuters.

The company is controlled by the Ermirio de Moraes family, one of Brazil’s richest with an estimated net worth of $12.7 billion as of March, according to business magazine Forbes.

People involved in the deal expected the company’s competitive standing and the fact it belongs to Votorantim Participações, the country’s largest industrial conglomerate, to fan investor participation in the IPO. Profit at Votorantim Cimentos rose at a compounded average growth rate of 18 percent over the past two years, hitting 1.64 billion reais in 2012, according to company data.

Votorantim Cimentos ranks currently as the world’s No. 8 cement producer, with operations spanning from Brazil and North America to China, India and North Africa. Proceeds from the IPO were to be used to fund expansion.

Reporting by Guillermo Parra-Bernal; Additional reporting by Asher Levine; Editing by Diane Craft

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