Argentina's Canuelas Delays $333 Million IPO Amid Volatility

(Bloomberg) -- Argentine agribusiness group Molino Canuelas S.A.C.I.F.I.A is postponing its U.S. and Buenos Aires initial public offerings because of market volatility.

The company postponed its sale of ordinary shares due to recent market volatility in Argentine markets, the company said in a filing to the local regulator. Canuelas had looked to raise as much as $333 million in an offering of 58.5 million shares in the range of $4.7 to $5.7 per share ($14-17 per American Depositary Share). The deal was expected to price Thursday night, according to data compiled by Bloomberg.

Canuelas faced a tough market window after the Merval Index snapped a five-day slump Nov. 15 from a record high. JPMorgan called the slump an "unjustified correction" as Argentina’s fundamentals remain promising after the successful performance of President Mauricio Macri’s coalition in midterm elections. The drop pushed a technical indicator toward a level that suggests stocks are oversold. 

Analysts had also pointed to the company’s high leverage ratio as a warning sign. Canuelas, which planned to use the capital raised to repay $142 million in outstanding debt, operated at a loss in the first nine months of 2017, according to a filing with the SEC.

"We had written to clients that unless it priced at a strong discount, it wasn’t interesting," said Leonardo Chialva, a partner at Buenos Aires-based consulting firm Delphos Investment. "We heard there was little investor interest."

Argentine companies have raised $3.3 billion in overseas equity sales this year, riding momentum amid high investor demand for Argentine names. Canuelas is the second sale by an Argentine company this year to be affected by market volatility. In July, IRSA Propiedades Comerciales suspended a follow-on share sale days after Argentina’s tax agency said it would enforce capital gains rules, leading the Merval to fall to a one-month low. (The company’s controlling shareholder later raised $140 million in a secondary share.)

Canuelas is known for consumer brands like Canuelas vegetable oil and 9 de Oro savory biscuits, which are typically paired with the national beverage, mate. The company also sells industrial products, like wheat flour sold to food companies, and agribusiness services such as wheat segregation and storage. Retail products is its most profitable segment, with gross margins greater than 30 percent, according to a roadshow presentation reviewed by Bloomberg.

"The company is a good alternative to diversify the portfolio in the retail-consumer space, and looks interesting in the lower end of the range," said Federico Perez, a portfolio manager at Axis Inversiones in Buenos Aires, which has $230 million under management, said ahead of the sale. "With that in mind, this has been a volatile week in the Argentine market and to buy Molinos comes with the opportunity cost of not buying other good stories that have positive upside at current levels."

Half of the shares were going to be offered by the company and the rest by shareholders and members of the controlling Navilli family, including Chief Executive Officer Aldo Navilli.

The sale came almost a month after business-friendly Macri’s coalition received more support than anticipated in congressional elections and as economic growth accelerates after a recession. Macri scrapped a 23 percent wheat export tax when he took office in December 2015 and opened new markets for surplus grain not purchased by Brazil, Argentina’s biggest buyer.

The company is looking to leverage recent investments to increase frozen food production by 74 percent and branded wheat products by 52 percent, according to the roadshow presentation. It recently invested $100 million in a frozen food facility and bought seven mills from Cargill SACI in Aug. 2016, neither of which is functioning at full capacity. 

JPMorgan Chase & Co, UBS Group AG, HSBC Holdings PLC and Itau BBA International Plc are leading the offering abroad, while AR Partners SA and Grupo Supervielle SA are leading it in Argentina. The company has applied to list in the New York Stock Exchange and Argentina’s Bolsas y Mercados Argentinos under the ticker MOLC.

To contact the reporter on this story: Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Christiana Sciaudone

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