UPDATE 4-Santander eyes 3.4 bln euros from Mexico listing

* Stock market listing could be largest ever in Mexico
* Shares to be priced at 29 to 33.5 Mexican pesos
* Santander aims to list most important units within 5 years

By Sonya Dowsett and Herbert Lash
MADRID/MEXICO CITY, Sept 4 (Reuters) - Spanish bank
Santander said on Tuesday it would seek to raise up to
3.4 billion euros ($4.3 billion) through the stock market
listing of a quarter of its Mexican unit as it looks to boost
capital levels and weather a grinding recession at home.
The euro zone's biggest bank said it would list up to 24.9
percent of Grupo Financiero Santander Mexico in what would be
the biggest public offering of a Mexican company to date,
valuing the unit at up to 13.7 billion euros.
"The total (raised) in this operation will increase our
capital" in Spain, Chairman Emilio Botin, wearing a red tie to
match Santander's logo, told a news conference in Mexico City.
"Not a peseta will be put toward cleaning up real-estate."
He said Santander, which has been struggling with writedowns
from the bursting of the Spanish property bubble, aimed to list
other important subsidiaries within five years, and acknowledged
economic difficulties back home in Spain.
"Everyone knows the situation in Spain is not like that in
Mexico," Botin said. "Mexico's is magnificent, and Spain's ...
we're not at our best moment."
The pricing of the offer is between 29 and 33.5 Mexican
pesos ($2.20-$2.54) per share, slightly below some analysts'
estimates for up to 36 pesos.
The placing of the stock starts on Tuesday and the shares
are expected to start trading in Mexico and New York around
Sept. 26, the bank said.
The transaction is in two tranches: one in Mexico, for 20
percent of the shares in the global offering, and one outside
Mexico, including the United States, representing 80 percent.
These amounts may be subject to reallocation depending on
demand, Santander said.
The Mexican unit will join Santander's Latin American
subsidiaries in Brazil and Chile on the stock exchange. The
lender has yet to list its Argentine and UK businesses. Mexico
accounts for about 12 percent of Santander's profit.
Botin said the bank's policy in coming years would be to
sell shares in its affiliates around the world, and said such a
stake sale in its U.S. unit was a possibility. However, there
was no pre-determined order.
"It depends on the market (conditions)," Botin told Reuters,
adding the bank had studied the Mexican unit sale for 2-1/2
years.

The biggest share offering of a Mexican firm prior to
Santander Mexico was the $2.2 billion flotation in 1991 of
Telmex, the telephone company controlled by tycoon Carlos Slim.

SPANISH WOES
The Spanish government is requiring Santander, alongside
other Spanish banks, to write down losses on bad real estate
investments as the country prepares for a European bailout of
its banks.
However, its Mexican unit has a strong capital base and has
been doing good business, boosted by a Mexican economy that is
expected to grow by around 4 percent in 2012, outperforming its
regional peer Brazil for the second year in succession.
"We're quite positive on the outlook for Mexico," said
Daragh Quinn, a banking analyst at Nomura in London. "The
Mexican financials have a very low weighting in the index, and
we would certainly argue there's some pretty decent prospects
ahead for the Mexican banking sector.
"Obviously the Spanish connections will undoubtedly be on
people's minds," he added, noting investors would be looking for
"a better understanding of what the connections are and what the
possible risks would be, but not necessarily look for that to be
reflected in the price."
Nick Robinson, who oversees Aberdeen Asset Management's
Latin American portfolio, said issues at the parent level are
not a concern as local subsidiaries tend to have very separate
balance sheets.
"This being the obvious key concern investors have, I
suspect they will have a robust answer to that issue," said
Robinson, adding that Aberdeen, the largest outside shareholder
in the Chile unit, is very interested in the Mexico offering.
The expected pricing is just below some market forecasts,
but that could be aimed at maximizing investor demand rather
than a bid to offer a discount against Spanish woes, Quinn said.
Berenberg bank estimated the deal would reduce Santander's
earnings by around 3 percent from 2013 to 2015, but said the
capital advantage outweighed potential earnings loss.
"Arguably, it detracts from future earnings growth. But
given the market is not paying for growth at the moment, we see
the positive development on capital as prevailing," said Marco
Troiano, an analyst at Berenberg.
Still, Francisco Riquel at N+1 Equities said the listing of
Santander's subsidiaries could lead to the perception of the
bank as a holding company.
Santander's first-half net profit was cut in half after it
made provisions for losses related to Spanish real estate,
prices for which are still falling after the market collapsed in
the financial crisis in 2008.
Santander, whose Latin American operations make up half the
group's profits, will not be one of the banks receiving
international aid.
The listing of the Mexican unit will boost Santander's core
capital ratio by around half a percentage point, the group said.