| SAO PAULO
SAO PAULO Banco do Brasil (BBAS3.SA), Latin America's largest bank by assets, will likely raise up to 10.9 billion reais ($6.13 billion) in a share offering this week, even as a recent surge in global risk aversion and the large size of the deal have cast concerns over its success.
Banco do Brasil's primary and secondary offering could be the largest in Brazil since Banco Santander Brasil (SANB11.SA) raised 14.1 billion reais in October. The state-run lender has been among the most profitable in Brazil, extending loans at a faster pace than non-government rivals Itau Unibanco (ITUB4.SA) and Banco Bradesco BBDC4.SA.
The offering comes as Banco do Brasil looks to strengthen its capital base to prepare for an increase in lending in coming years and seeks to increase its free-floating shares. The bank is also looking to raise funds for takeovers in Latin America and the United States.
"The financial sector in Brazil is still very profitable and has very good growth prospects, so from that perspective it's obviously good," said Greg Lesko, who oversees $750 million in stocks at Deltec Asset Management.
Lesko met with Banco do Brasil executives in New York last week during a road show for the offering and is considering buying the shares because of the growth outlook in Brazil.
To be sure, the large size of the deal raised concerns it might face difficulty finding enough buyers as risk aversion grew in the past weeks because of the turmoil in global markets and concerns over debt troubles in Europe.
Shares of the Brasilia-based lender have plunged nearly 19 percent since mid-April, when it announced the offering, partly on concern about the success of the transaction. The benchmark Bovespa index .BVSP fell about 9 percent over that period.
The shares fell on Friday for a third straight day, shedding 1 percent to 27.10 reais.
"The timing and the outlook for the banking sector in Brazil are far from being bad, particularly if you compare with what's happening abroad in the United States and Europe," said Andre Querne, managing partner at hedge fund Rio Gestao de Recursos, which handles 140 million reais of stocks.
Still, the deal underscores management concerns that two years of quick growth in the bank's lending portfolio could erode performance and solvency measures. The bank needs cash to fuel growth in retail and investment banking and insurance.
In a recent report, ratings company Standard & Poor's said Banco do Brasil's lower capital base and efficiency, compared with its main rivals, and its growing exposure to a downturn in credit could act as a limit to its strengths.
Banco do Brasil started to gauge potential demand for the offering from investors on June 14 and expects the stock sale to price on June 30.
The bank plans to sell 286 million new shares in a primary offering. State development bank BNDES will offer 41.17 million shares through its BNDESPar holding company, while two government-owned funds will offer a total of 29.68 million shares in a secondary sale, according to the prospectus of the offering.
The sale could increase by 39.15 million shares if underwriters exercised an option to sell additional stock to meet demand.
Brazil's sovereign wealth fund agreed to buy 62.5 million shares in the Banco do Brasil offering, a stake valued at $1.7 billion reais at Friday's closing price.
Previ, the fund for Banco do Brasil employees, owns 10.4 percent of the bank's stock and also agreed to buy all the shares to which it is entitled as a current shareholder.
Commitments from the sovereign fund and Previ, Latin America's largest pension fund, to buy Banco do Brasil shares mean that nearly a third of the offering already has buyers, easing concerns about demand for the deal.
One aspect playing to the advantage of the deal is its simplicity, relative to the complex share sale being planned by Petrobras (PETR4.SA), Brazil's state-controlled oil company, investors noted.
Last week, Petrobras suspended for two months its offering, which included an oil-for-shares swap with the government worth up to $50 billion and a
sale to minority investors worth $25 billion.
"Besides Previ and the sovereign fund, there are other banks from abroad, large overseas funds that are buying into this deal," said Cesar Mezomo, who helps manage 950 million reais in stocks at Victoire Brasil Investimentos in Sao Paulo. Victoire plans to buy Banco do Brasil shares in the offering.
BB Banco de Investimento, the bank's securities arm, will serve as the lead underwriter of the offering. BTG Pactual and the local units of Bank of America Corp's (BAC.N) Bank of America Merrill Lynch, Citigroup (C.N) and JPMorgan Chase & Co (JPM.N) will also help underwrite the sale.
Banks stand to earn as much as 54.5 million reais in fees from the stock sale, or the equivalent of 0.5 percent of the total offering, one of the lowest fees in recent deals in Brazil.
(Editing by Guillermo Parra-Bernal, editing by Gerald E. McCormick)