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Brazil airline shares up on end to foreign capital limits, Azul IPO
April 11, 2017 / 6:52 PM / in 7 months

Brazil airline shares up on end to foreign capital limits, Azul IPO

SAO PAULO (Reuters) - Brazilian airline stocks surged on Tuesday as an end to limits on foreign capital and the sector’s first new listing in more than a decade opened the door to more investment in the industry amid an incipient recovery and a wave of airport privatizations.

FILE PHOTO: An Azul aircraft prepares for departure at Congonhas airport in Sao Paulo, Brazil, November 24, 2015. REUTERS/Paulo Whitaker

Shares of Azul SA (AZUL4.SA) jumped as much as 9 percent in their market debut after a bigger-than-expected dual initial public offering in New York and Sao Paulo raised 2 billion reais ($636 million) for the market’s No. 3 carrier.

Larger rival Gol Linhas Aereas Inteligentes SA (GOLL4.SA) also gained nearly 8 percent on news that President Michel Temer planned to allow full foreign ownership of the country’s carriers, expanding funding options for the debt-laden sector.

Temer will sign an executive order on Tuesday allowing foreign owners to hold as much as 100 percent of Brazilian airlines, up from the current 20 percent limit, said Tourism Minister Marx Beltrão, confirming a Reuters report.

The measure removes a barrier to foreigners who have poured millions into Brazilian airlines this decade, from Gol partner Delta Air Lines (DAL.N) to Chinese Azul investor HNA Group and Chile-based LATAM Airlines Group SA, which controls the biggest carrier in Brazil.

Foreign capital restrictions led to the complex structure of a 2012 tie-up between the Chilean and Brazilian airlines then known as LAN and TAM, one of several factors that produced disappointing returns from the blockbuster merger.

Brazil’s air travel industry has also suffered for the past four years from a severe economic downturn that sapped demand and weakened the local currency, driving up the cost of dollar-denominated fuel and aircraft leasing contracts.

That slump has shown signs of ending this year, as deep cuts to domestic fleets have helped to fill planes and lift prices, while Temer has kicked off a national infrastructure program by privatizing four airports and eyeing ten more.

The good news culminated for Azul with a successful IPO on Monday after years of false starts, valuing the company at $2.4 billion, according to a source familiar with the deal. It was the biggest new listing in Brazil since April 2013 and the first airline to go public since Gol’s 2005 IPO.

“It shows you the confidence of investors in the economic recovery,” Azul President Antonoaldo Neves told journalists at the Sao Paulo Stock Exchange. He declined to discuss the airline’s plans for the cash.

($1 = 3.14 reais)

Reporting by Brad Haynes and Paula Laier; Additional reporting by Bruno Federowski and Alberto Alerigi Jr.; Editing by Meredith Mazzilli and Chizu Nomiyama

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