Unlocking change: Striving for a deeper and more diverse market

The Lima Stock Exchange (Bolsa de Valores de Lima, BVL) has traditionally been known as a small regional player specialising primarily in mining stocks. While the mining sector remains the most active on the BVL in terms of trade volume, the exchange is likely to see several non-mining initial public offerings (IPOs) in 2012 as a result of serious efforts to diversify and deepen stock offerings.

EDUCATING FIRMS: The BVL itself is working in partnership with the Inter-American Development Bank as part of a programme designed to get more companies to list. The initiative, known as Avanza BVL, offers seminars and workshops that educate midsized companies on the opportunity to raise funds by going public. While Avanza BVL claims no sector-specific focus, in order to qualify for the programme’s support companies must be 1-3 years old and have annual sales between $5m and $100m. According to economist Carlos Anderson, family-owned enterprises’ hesitancy to list is one of the main factors preventing the expansion of equity offerings. “A lot of our medium-sized businesses are family-owned. They view listing on the exchange as a costly procedure. They also fear losing control over their companies. To overcome this, we really need a change in mentality.”

While educational programmes like Avanza BVL may be the key to unlocking such a change, Alonso Segura, the chief economist and head of strategy at Banco de Crédito del Perú, pointed out another potential challenge. “One thing companies think about is, if I go through the struggle and expense of listing my company, how many buyers will there be? Most of the time, when a new company lists, pension funds end up buying most of the stock. There is little participation from retail investors, and thus little liquidity.”

According to Guillermo Arbe, chief economist at Scotiabank Perú, simple organic growth, like that which many companies are experiencing, may finally be what pushes more businesses to go public despite some of their concerns. “There comes a time when a company gets so large you have to start operating differently. We are seeing that now,” Arbe told OBG.

A NEW STRUCTURE: In February 2012 the BVL had its first IPO in over a year. The company, Andino Investment Holding (AIH), a port operator with plans to expand its operations at the northern port of Paita, sold more than 34m shares at PEN3.30 ($1.21), each, capturing $42.7m in funding.

A particularly interesting aspect of this sale was its focus on retail investors, which addresses the concerns previously described by Segura. AIH conducted the sale in three stages targeted at retail investors and institutional investors in Peru and abroad, limiting the number of shares purchased by each sub-set. This structure ensured that a sizeable number of retail investors were able to acquire ownership in the company. “I believe more firms will follow this model in the future, as it ensures the liquidity of the stock,” said Roberto Flores, the head of research at Inteligo SAB, an equity research firm.

Apart from AIH, Petroperú and Electroperú, the state-owned energy and electricity companies, may go public in 2012 as well. Both companies are able to list up to 20% of their value on the local exchange.

While Lima’s stock analysts have long contemplated the possibility of Petroperú and Electroperú listing, many are optimistic that 2012 will be the year. According to Flores, “The difference now from in the past is that with the change in government we have seen more advances to perform these IPOs. [ President Ollanta] Humala has always wanted to improve the presence of public companies and one way to do this is to allow the companies to list on the exchange. This is in line with the Humala strategy.”

While initiatives such as Avanza BVL will continue to make a conscious effort to deepen and diversify the market, perhaps 2012 will demonstrate that the best way to accomplish this task is by experiencing the sort of rapid growth that influences companies to ambitiously rethink their business plans.