UPDATE 4-BTG Pactual files for Brazil's most-coveted IPO
* BTG Pactual files plans for long-awaited share sale
* Plans to offer common, preferred stock in São Paulo
* Deal may give more visibility to Brazil IPO market
* Proceeds will help prop up declining capital ratio
By Guillermo Parra-Bernal
SAO PAULO, March 1 (Reuters) - BTG Pactual, the investment bank controlled by Brazilian billionaire André Esteves, filed plans to sell shares in what is likely to be the country's most coveted initial public offering this year.
The IPO will be the first by an investment bank based in Brazil, an emerging economic power whose financial industry is booming. While the local IPO market has suffered with recent market turmoil, the BTG Pactual offering will give investors the chance to buy into a fast-growing firm with aspirations of rivaling global giants like Goldman Sachs Group Inc.
BTG Pactual, which is based in São Paulo, will list common and preferred stock as well as two classes of local depositary receipts. A sale of global depositary units in Amsterdam will take place simultaneously with the Brazil IPO, in which two other shareholders will also sell stock.
Since it was formed in 2009, BTG Pactual has been on a deal-making frenzy in Brazil and abroad as Esteves, a 43-year-old financial wunderkind and the bank's chief executive, tries to make the firm the largest investment bank in emerging markets by the end of the decade.
BTG Pactual and Esteves himself have become symbols of Brazil's growing economic might, competing neck and neck with global investment banks in a region with bustling capital markets and surging demand for wealth management services.
"This deal will pose a litmus test for the Brazilian market; it will give the local market a lot of global visibility," said Eleazar de Carvalho Filho, managing partner at local investment bank Virtus BR Partners. "I'm sure it will be well-received."
Based on an acquisition it made last month, BTG Pactual is worth about $14.8 billion, which would make it one of Brazil's 20 biggest companies by market capitalization. The 3-year-old bank would be worth more than the combined market value of Brazilian steelmaker Usiminas and Cosan, the world's leading ethanol producer.
The latest valuation for BTG Pactual is also equivalent to 25 percent of that of Goldman Sachs, the world's most profitable securities firm, and 40 percent of Morgan Stanley.
BTG Pactual's worth is almost 50 percent more than the $10 billion valuation it got in December 2010, when investors led by buyout firm JC Flowers & Co, the two largest Asian sovereign wealth funds and the largest Middle Eastern sovereign wealth fund, bought an 18.6 percent stake.
Virtus' Carvalho credited BTG's torrid growth and increasing appeal to the bank's aggressive focus on deal-making and merchant banking as well as Esteves' ability to secure the cheapest and most efficient sources of funding for deals.
Bloomberg News reported this week that a 10 percent stake in BTG Pactual could be offered in the IPO. An external public relations executive working for BTG Pactual declined to comment.
ROUGH TIMES FOR IPOS
The deal comes at a time when Brazil's once-hyped IPO market is struggling as an unpredictable economy and the risk of overpriced deals scare investors away. Local equity markets have not seen any new listing since July.
Only 11 initial public offerings were completed in 2011, with eight pricing at the bottom or below the suggested price range, data by Ernst & Young showed.
Details on the size and a timetable for the BTG IPO were not available. BTG Pactual's own investment banking unit will handle the transaction, along with Banco Bradesco, Goldman Sachs and JPMorgan Chase & Co.
The bank will use proceeds from the IPO to expand all areas of business and strengthen its capital base. The bank requested permission to become a public company in Brazil last August, but Esteves and his partners postponed the IPO because of volatility in global markets.
Bankers on the deal will seek to price BTG Pactual shares at a premium over shares of rival domestic banks, said Oliver Leyland, who oversees $600 million in equities for Mirae Asset Global Investments in São Paulo. Brazilian banks are trading at an average 9.9 times estimates earnings, according to Thomson Reuters data.
Shares of Goldman Sachs trade at 11 times 2012 expected earnings.
"Maybe a premium to the local is justified because of the nature of their business, their track record and their appeal," Leyland said.
ESTEVES & PARTNERS
Esteves, a mathematician who started as a computer technician at Banco Pactual at age 21, rose through the ranks to become its managing partner and sold the bank to UBS AG in May 2006 for about $3.1 billion. He and some partners bought back Pactual for about $2.5 billion in 2009 and formed BTG Pactual.
All told, Esteves, the bank's seven senior partners and some of the 1,300 employees own 80 percent of the company. Forbes Magazine calculates Esteves' net worth at about $3 billion.
Esteves, a champion of meritocracy, has boasted for years about the productivity of BTG Pactual's staff. Last year, average revenue per employee was close to $1.9 million -- three times the combined number for Goldman, Morgan Stanley and Credit Suisse Group.
In addition, compensation amounted to an average $412,000 per employee, compared with $294,700 at those three banks. Yet BTG Pactual spent only 25 percent of revenue on salaries and bonuses last year, compared with 48 percent among peers.
BTG Pactual has spent at least $2.5 billion on acquisitions in the past two years in real estate, finance and services, all areas that have blossomed in the wake of strong job creation and resilient wages. The bank also helped rescue troubled Brazilian lender Banco PanAmericano early last year, using it as a launching pad for a consumer and mortgage lending giant.
BTG Pactual's penchant for takeovers has helped it boost profit and increase its assets nearly by half since 2010. But it has also taken a toll on the bank's capital base.
BTG Pactual said its capital solvency ratio fell to 17.7 percent at the end of last year, from 21.5 percent in 2010. The level is still well above the Brazilian central bank's minimum threshold of 11 percent for commercial lenders.
An IPO will help boost the ratio to prior levels, said Francisco Kops, an analyst at Banco Safra.
With more capital ready to be deployed for acquisitions, return on equity -- a measure of a bank's profitability -- could rise from 24.2 percent at the end of last year, he added. ROE, as the indicator is known, fell from 27.5 percent in 2010.
"The transaction should leverage their capital and acquisition capabilities even further," Kops said.
In 2011, BTG Pactual topped merger and acquisitions advisory rankings in Brazil for a second year, as its focus on retail and other fast-growing segments resulted in $24.05 billion worth of announced deals, according to Thomson Reuters data.
The bank advised on 52 deals last year. The number of agreements announced in Brazil rose to 745 last year from 698 in 2010, with the dollar volume falling to $78.64 billion from $120.61 billion.
Banco BTG Pactual will be the holding company listed in Brazil, while BTG Pactual Participations Ltd will do the same overseas. Among shareholders divesting part of their stakes are Delaware-based Marais LLC, and Europa Lux III, of Luxembourg.
Esteves and BTG Pactual's seven senior partners will hold a so-called golden share -- which give controlling shareholders of a firm the right to fight unsolicited takeover attempts.
Bradesco will be the custodian for the common and preferred stocks, the BDRs, and the units to be traded in Amsterdam.
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