By Tatiana Bautzer and Carolina Mandl
SAO PAULO, March 1 (Reuters) - When it comes to Brazilian initial public offerings (IPOs), geography sometimes still matters even in a globalized world.
For example, Brazilian credit card services company PagSeguro Digital Ltd PAGS.N , which commanded a $6.8 billion valuation when it went public on the New York Stock Exchange(NYSE) in January, surpassed its bankers' wildest expectations.
The forecast-beating flotation was mostly due to parent company Universo Online SA's (UOL) decision to skip the localSao Paulo exchange run by B3 SA Brasil Bolsa Balcão BVMF3.SA in favor of a market where companies in the fin-tch space fetch a better premium, people close to the deal say.
The decision underscores how Latin American bourses - long dominated by traditional companies like banks, consumer goods makers, telecoms and commodities plays - are struggling to lure tech start-ups.
If that trend continues, it could exclude exchanges like B3from one of the Brazilian economy's growth sectors.
B3 denies there is any wider trend of companies migrating to other markets. Of the 28 share offerings by Brazilian companies last year, only two were purely abroad and three were dual listings.
But Tiago Isaac, responsible for relations with issuers atB3, acknowledged that tech companies, which are a rarity inBrazil, are the exception.
"High growth tech companies only find a large pool of investors in the U.S.", he said.
PagSeguro's underwriters wanted it to be compared with U.S.fintech companies such as PayPal Holdings Inc PYPL.O andSquare Inc SQ.N and not with slower growth local peers such aspayment processor Cielo SA CIEL3.SA .
PagSeguro focuses on digital payments accounts and sellspoint of sales devices rather than traditional merchantprocessing.
Its shares, which have rocketed 50 percent since its IPOprice, trade at 33.4 times its forward earnings, a very similarmultiple to PayPal's 33.7 times.
That is more than double the multiple for Cielo, Brazil'sonly listed credit card services provider.
"They wanted to tap a tech investor base that does not existin Brazil's stock exchange", according to one person close tothe matter.
The bet paid off. PagSeguro's market capitalization ofaround $10 billion is nearly half of Cielo's, despite the factthat its larger rival has five times the market share, accordingto Goldman Sachs (NYSE:GS)' estimates.
The IPO made the Frias family, controlling shareholders ofUOL, Brazil's biggest Internet content and services provider,into billionaires.
PagSeguro declined comment. UOL officials could notimmediately be reached for comment.
In listing on Intercontinental Exchange Inc's ICE.N NYSE,PagSeguro followed in the footsteps of other Brazilian companiessuch as zinc and copper miner Nexa Resources SA NEXA.N andonline retailer Netshoes Ltd NETS.N .
Credit card processor Stone Pagamentos SA is alsoconsidering a New York IPO, Reuters reported in January. IN TORONTO
To a lesser extent, the same might be true of mining, whereToronto has long been a magnet for offerings and recently luredNexa Resources in a joint offering along with the NYSE.
Nexa Chief Financial Officer Mario Bertoncini said in arecent interview that Toronto has specific rules that allowminers to disclose estimates of reserves.
"Listing in Brazil would not bring additional demand for ourIPO, since institutional Peruvian and Brazilian investors, whereour operations are based, have easy access to internationalmarkets," he said.
Still, Nexa's foreign listing foray fell well short ofPagSeguros'. The company is valued at 11 times its forwardearnings, lower than First Quantum Minerals Ltd 's FM.TO 17times or Southern Copper Corp's SCCO.N 19 times.
Bertoncini says the multiples comparison is distorted by thefact that 65 percent of Nexa's revenue comes from zinc, whereasmost comparables concentrate on copper, and the price trends aredifferent for both metals.
A smaller Brazilian company, Ero Copper Corp ERO.TO , haslisted in Toronto, and Sigma Lithium Resources Inc, a smallCanada headquartered lithium miner all of whose assets are inBrazil, also plans a transaction soon, IFR reported last month. Nexa priced its IPO at $16, below its initiallyexpected price range of $19 to $21, its shares have risen 30percent since the offering.
Only large companies have a chance of listing abroad, saidAlessandro Zema, Morgan Stanley (NYSE:MS)'s head of investment banking inBrazil.
"A large sized offering enhances liquidity and thus theattractiveness of a transaction," Zema said, declining toelaborate on specific offerings.
Brazilian companies valued at less than $1 billion do notusually consider an IPO abroad, according to other bankers andlawyers.
Shoe, fashion and beauty online retailer Netshoes, valued at$557 million at the time of its April IPO, might have done wellto follow that dictum.
The company's shares have slumped 56 percent as it hasstruggled to turn a profit. Although investors are familiar withthe e-commerce world, distance from its operations, exclusivelyin Brazil, made it harder to explain losses to investors, peopleclose to the matter said.
Netshoes said in a note that its share price reflectsinvestors' expectations versus Netshoes's performance, and isnot related to its listing venue.
Meanwhile, dual listings such as Argentina's Loma Negra,which priced its IPO last November in Buenos Aires and New York,remain much more common than deals which bypass local exchangesaltogether. The company raised $1 billion in its offering. are specialized investor pockets that concentrate inspecific markets, and that's where it makes sense to list thecompanies aiming to tap a certain investor base," said Hans Lin,head of investment banking in Brazil at Bank of America (NYSE:BAC) MerrillLynch.($1 = 3.2394 reais)