Jair Bolsonaro emerges as a risk factor for Brazil IPO pipeline

Competition, the pandemic and sectoral demand are common challenges facing companies planning initial public offerings (IPOs), but Brazilian companies have started to flag a new risk: political upheaval from President Jair Bolsonaro.

Cosmetics maker Coty and retailer Cencosud's Brazilian units included the risk of a presidential impeachment in their recent offering prospectuses, while Coca-Cola Co's distributor Solar Bebidas SA cautioned about turmoil ahead of the 2022 presidential elections.

Bolsonaro's recent confrontation with Brazil's Supreme Court amid an economic crisis has raised fears over the country's reform process and threatens to poison the environment for 25 IPOs-in-waiting, which — added to this year's 44 listings so far — would break Brazil's record for IPOs.

Last week, Bolsonaro toned down his fight with the top court, which authorised probes of him and his allies based on allegations that they had attacked Brazil's democratic institution. But market participants still question how long the truce will last. The Bovespa benchmark is down 2.9 per cent this year in US dollar terms, one of just five global indexes in negative territory for the year.

"The outlook for IPOs is more challenging. A potential institutional crisis may reduce chances of approval of reforms needed to boost the economy's growth", said Gustavo Miranda, investment banking head at Banco Santander Brasil SA.

Even before the pro-Bolsonaro rallies on Sept 7, IPOs were facing a bumpier time amid sluggish growth, and high unemployment, among other things.