Azul, shareholders fetch $645 million in bigger-than-expected Brazil, US IPO

A worker mows grass while an Azul SA jet lands at the the Santos Dumont Airport (VCP) in Rio de Janeiro, Brazil.
Dado Galdieri | Bloomberg | Getty Images
A worker mows grass while an Azul SA jet lands at the the Santos Dumont Airport (VCP) in Rio de Janeiro, Brazil.

Azul and several shareholders raised 2.021 billion reals ($645 million) in a dual initial public offering in São Paulo and New York on Monday, as soaring investor demand led Brazil's No. 3 airline to boost the size of the deal by almost one-fifth.

São Paulo-based Azul priced the equivalent of 72 million preferred shares at 21 reais each, the midpoint of the suggested price range. An additional 13 million shares were sold in the IPO as investors bid over five times the amount of Azul stock on offer, three people familiar with the deal said.

Reuters anticipated the 21 real-a-share pricing earlier in the day. The stock starts trading on Tuesday under the symbols "AZUL4" in São Paulo and "AZUL" in New York.

Seventy percent of the IPO was placed in New York, with Brazil-based investors keeping the rest, said one of the people, who asked for anonymity. The offer values Azul, which JetBlue Airways founder David Neeleman started almost a decade ago, at a 4 percent premium to larger Brazilian rival Gol Línhas Aéreas Inteligentes, the person said.

The IPO's success suggests that an April 6 decision by Brazil's securities watchdog to suspend the transaction hours ahead of pricing did little to abate interest in the issue. The watchdog known as CVM said Azul had given some investors information that was not included in the transaction's official documentation.

The impasse posed a temporary setback to Azul, which had to call off plans to go public on three previous occasions because of challenging market conditions. The company got clearance from regulators to pursue the IPO on Friday, after pledging to include estimates of projected gains in Azul's investment in TAP Transportes Aéreos Portugueses into the official prospectus.

Azul's American depositary shares priced at $20.12, two of the people said.

'Unlock value'

The IPO also underscores the growing allure of Brazilian airlines among foreign investors as the government eases foreign ownership of carriers and the economy begins to show signs of emerging from a deep recession.

Shares could rise up to 30 percent due to its Azul's client loyalty plan and stake in TAP, Eleven Financial Research analysts led by Daniela Bretthauer said in a client note.

"Azul has these two 'hidden assets' that could unlock significant value and funds for the company," Bretthauer said.

After failed attempts to list in 2013, 2014 and 2015, Azul raised fresh capital through private stake sales in 2015 to United Continental, which snapped 5 percent of the company for $100 million, and China's HNA Group, which bought a 23.7 percent stake for $450 million.

The investment banking units of Citigroup, Deutsche Bank, and Itaú Unibanco Holding are acting as the offering's underwriters.

Other banks in the transaction included Banco do Brasil Securities, Banco Bradesco BBI, Santander Investment Securities, JPMorgan Chase, Raymond James Securities, and Banco Safra SA.

Proceeds from the IPO should bolster Azul's balance sheet as it gets new jets and adds foreign routes from Brazil, to take on rivals Gol and LATAM Airlines Group's TAM brand.