Santander set to raise over $4 billion in Mexico unit offering
MEXICO CITY (Reuters) - Spain's Banco Santander (SAN.MC) is set to raise more than $4 billion in a dual-country offering of its Mexican unit's shares aimed at helping the bank shore up its operations in the ailing Spanish economy.
The offering, which would be the largest ever by a Mexican company, will be priced at 31.25 pesos ($2.44) per share in Mexico, two people familiar with the deal told Reuters on Tuesday.
The figure put the price in the middle of the range of 29 to 33.5 pesos set by the bank earlier this month, beating the predictions of wary investors and cementing Mexico's emergence as Latin America's investment hot spot.
Santander, Spain's largest bank, is seeking to raise up to $4.3 billion by offering 24.9 percent of Santander Mexico (SANMEXB.MX) in Mexico and the United States. The offering is the second-largest in the United States this year behind Facebook (FB.O).
The company declined to comment on the pricing.
The transaction is in two tranches: one in Mexico, for 20 percent of the shares in the global offering, and one in the United States representing 80 percent.
The U.S.-listed shares, each the equivalent of five local ones, are priced at $12.18 each, U.S. market sources said. That would bring the total amount raised to some $4.126 billion.
That figure represents a 65 percent premium to the $2.5 billion Santander paid in June 2010 to buy back that exact same stake that had been owned by Bank of America.
If the listing was seen as a test of investor interest in Mexico, the country scored high, analysts said.
"This is a very meaningful transaction because probably there were concerns or worries that the market would be hesitant because of the association to a Spanish bank and Spanish banks are going through a difficult time," said Alejandro Garcia, senior banking analyst with Fitch Ratings in Monterrey, Mexico.
"This is a pretty strong show of confidence in the Mexican banks and particularly in Santander," he said.
Brazil has long been the regional darling of investors, but a recent soft patch there and a slowdown in China's breakneck growth has now swung the pendulum in favor of Mexico. In the seven months through July, foreign investors pumped in $3.4 billion into Mexico's stock market compared with $2.9 billion in Brazil.
STRONG GROWTH PROSPECTS
Santander Mexico is a lucrative bank with solid growth prospects in a country set to expand by about 4 percent both this year and in 2013.
Still, some fund managers had reservations about the offering, betting it would price at a discount because of the parent company's exposure to the European debt crisis and because the Mexican bourse is already trading at a high price-to-earnings ratio.
Spain became the focal point of the euro zone debt crisis earlier this year as it became clear its banks would need financial support to rid their balance sheets of around 185 billion euros of toxic real estate assets. An independent stress test of the country's banking sector revealed capital needs of 50 billion to 60 billion euros ($77.7 billion).
The proceeds from the Mexican unit's listing will be used to boost the capital levels of Santander in Spain, where it is relatively healthy but has taken hits from write-downs.
Another worry for investors is that the parent bank could sell more shares in the Mexican unit if it needs another capital boost, watering down the value of early investors' holdings.
By pricing in the middle of the range set by the bank, the stock should rise in its first trades on Wednesday, said Carlos Alonso, a trader at brokerage Interacciones in Mexico City.
"If the stock doesn't fall, given the size of the issue, which was really big for what we're used to here in Mexico, I think there could be interest from other companies once they see there is appetite for new names," he said.
Santander Mexico stands to benefit from a growing middle class that is just starting to open bank accounts and take out loans for the first time, in contrast to more developed banking systems in countries like Brazil and Chile.
The division generated 12 percent of Santander's overall profit in the year through June 30, based on just 4 percent of the bank's worldwide assets.
"Even if you have a scenario where the economy stalls a bit, you still have banks having very likely more demand for their products as new customers are seeking their first banking relationship," said Maclovio Pina, senior equity analyst at Morningstar Inc, an investment research firm.
Depending on how Santander's stock fares in coming days, other banks could be persuaded to launch their own IPOs.
"It opens the door for perhaps medium sized or smaller banks to pursue some IPOs," Fitch's Garcia said.
According to bankers, BBVA's (BBVA.MC) Mexican arm Bancomer is a likely candidate for a dual listing. Bank of Nova Scotia (BNS.TO) said earlier this month it may sell minority stakes in some Latin American operations, although officials stressed there were no immediate plans.
The Santander flotation is the latest spinoff by Santander of one of its local units. Its Brazilian unit raised $8 billion in 2009.
The Mexican unit will begin trading on the New York Stock Exchange on Wednesday under the ticker "BSMX" (BSMX.N)
The IPO underwriters include UBS, Santander, Deutsche Bank and Bank of America Merrill Lynch. ($1 = 12.8005 Mexican pesos)
(Additional reporting by Louise Egan, Michael O'Boyle, Olivia Oran and Herb Lash; Editing by Tim Dobbyn, Leslie Adler, Jim Marshall and Muralikumar Anantharaman)
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