Manabi SA, the first Brazilian iron- ore company to go public since 2006, is counting on Ontario Teachers’ Pension Plan to spark investor interest in its share sale after Brazil’s benchmark stock index entered a bear market.
Rio de Janeiro-based Manabi filed on May 16 to sell shares in Sao Paulo and Toronto to help finance $4.12 billion of iron ore projects in Brazil’s Minas Gerais state. Canada’s third- biggest pension fund is Manabi’s top investor with a 21 percent holding, while South Korea’s sovereign wealth fund and Southeastern Asset Management also have stakes in the company.
Ontario Teachers is seeking to replicate its gains from a $450 million investment in Brazilian billionaire Eike Batista’s OGX Petroleo e Gas Participacoes SA., which swelled in value to $2.5 billion when the oil producer went public in 2008. Manabi Chief Executive Officer Ricardo Antunes Carneiro is a former executive at two Batista-controlled companies and also worked 22 years at Vale SA (VALE3), the world’s largest iron ore producer.
“It’s clear that being backed by a big name helps,” Leonardo Zanfelicio, an analyst at Concordia SA Corretora, said by telephone from Sao Paulo. “It’s a fund that seems to like investing in companies that are developing projects.”
Manabi is at least the fifth company in Brazil to file for an initial public offering since March 13, when Brazil’s Bovespa (IBOV) index began its 21 percent decline through May 17, entering a so-called bear market. Louis Dreyfus Holding BV is selling shares in its Brazilian processor unit LDC Bioenergia SA, according to a preliminary prospectus. Vix Logistica SA, a transports and logistics company, is also among companies that filed to sell shares.
Deborah Allan, a spokeswoman for Ontario Teachers’ in Toronto, said the company doesn’t comment on its strategy and referred IPO questions to Manabi. A Manabi official in Belo Horizonte declined to comment during the IPO process.
The Manabi project has “high risks” including the construction of an extensive pipeline and new port terminal, Barclays Plc analysts led by Leonardo Correa in Sao Paulo said in a May 21 research note to clients.
Manabi’s plans include building two projects with capacity to produce 31 million metric tons of iron ore per year and a port terminal in neighboring Espirito Santo state.
Manabi, which expects to start operations at its mines in 2016, is considering commissioning the construction of a 530 kilometers slurry pipeline to link its Morro do Pilar mine with the port terminal, from where the iron ore will be shipped to Asia, the Middle East and Europe, according to the prospectus.
Companies from Vale to Anglo American Plc (AAL) are experiencing delays in new iron ore projects in Brazil because of permit delays, cost increases and logistics bottlenecks. Ferrous Resources Ltd., an iron-ore venture backed by U.S. billionaire Philip Falcone, has been looking for a strategic partner to help finance its projects since at least 2009, having shelved plans in June 2010 for a $400 million public offering.
“I don’t think this is a great time to bring yet another iron-ore play to the marketplace,” Arthur Byrnes, chairman of Deltec Asset Management LLC, said in a telephone interview from New York. “I don’t see why anybody would be rushing.”
Vale (VALE5) last year delayed the Serra Sul expansion, its biggest project ever, for two years amid lack of environmental licensing. Anglo American, based in London, was ordered by the authorities to stop construction at its Minas Rio project, the company’s biggest, six times. The reasons for the stoppages included protecting the area’s artistic and cultural heritage.
“This project is a good example of the increasing complexities to bring on new iron ore supply to the market,” Barclays analysts led by Correa said of the Manabi venture.
The volatility in international markets makes it harder for investors to back pre-operational projects, Will Landers, who manages $7 billion in Latin American equities at New York-based BlackRock Inc, said in an interview May 22.
“It’s very tough in this market environment because you are not going to have quarterly catalysts that are going to be drivers for the stock,” he said. “Vale is so cheap now that why would you get involved with a smaller company?”
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