Brazil's BTG Pactual and shareholders could raise up to 4.1 billion reais ($2.2 billion) in an initial public offering that may turn the investment banking powerhouse controlled by billionaire André Esteves into one of the world's most valuable banks.
The IPO will be the first by an investment bank based in Brazil, an emerging market power whose financial industry is booming. While local offerings have struggled with recent market turmoil, BTG Pactual's IPO will give investors a chance to buy into a fast-growing firm with aspirations of rivaling global giants like Goldman Sachs Group Inc (GS.N).
The IPO will involve the sale of up to 121.5 million units at a suggested price of 28.75 reais to 33.75 reais per unit, according to a prospectus published on Tuesday. Each unit will be comprised of common and preferred stock issued by holding companies Banco BTG Pactual and BTG Pactual Participations.
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 away investors. Local equity markets have not seen any new listings since July.
Investors in Brazil see the BTG Pactual IPO as a watershed event in the local market after the first three offerings of 2012 were pulled. For the deal to succeed, Esteves must seek a fair valuation for his bank, whose earnings depend on market swings, investors said.
"If the price offers some room for the upside, I don't see why the BTG Pactual (IPO) wouldn't be successful," said Nick Morse, who oversees $24 billion in emerging market equities at Schroders Investment Management in London.
BTG Pactual might be pursuing a more timid valuation to avoid upsetting potential buyers, who remain reluctant to take on risky bets like IPOs and are instead pouring money into existing stocks, whose risks are easier to assess.
A price between 8.5 times and 10 times estimated earnings is possible, people with knowledge of the deal said. Such a ratio is lower than talk of multiples of 11 to 12.5 when the deal was first announced on March 1.
BTG Pactual's own investment banking unit will handle the IPO, along with Banco Bradesco BBDC4.SA, Goldman Sachs and JPMorgan Chase & Co (JPM.N).
"WHY SELL AT A DISCOUNT?"
Under terms of the transaction, Esteves will funnel up to 80 percent of the proceeds into the bank's capital. The price tag came in slightly above expectations, signaling that BTG Pactual is betting on strong demand for its shares.
Based on an acquisition it made earlier in the year, BTG Pactual is worth $14.8 billion, making it one of Brazil's 20 largest companies by market capitalization.
The latest valuation for BTG Pactual is 25 percent of that of Goldman Sachs, the world's most profitable securities firm, and 18 percent of that of Itaú Unibanco Holding (ITUB4.SA), Brazil's biggest bank by market capitalization.
BTG Pactual's current 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 East sovereign wealth fund, bought an 18.6 percent stake.
Itaú Unibanco is currently trading at 9.5 times estimated earnings. Brazilian banks are trading at an average multiple of 9.1, according to Thomson Reuters data.
BTG Pactual's impeccable track record, strong franchise and above-market profitability ratios merit a premium over larger, older rivals, some analysts said.
"I don't see why they would sell the stock at a discount with such strong credentials," said Federico Rey-Marino, a Buenos Aires-based analyst with Raymond James & Associates. "Their business, despite being volatile, is fast-growing and very profitable."
BTG Pactual and Esteves himself have become symbols of Brazil's growing economic might, competing head to head with global investment banks in a region with bustling capital markets and surging demand for wealth management services.
Esteves, a mathematician who started as a computer technician at Banco Pactual at age 21, rose through the ranks to become managing partner and sold the bank to UBS AG UBSN.VX in May 2006 for $3.1 billion. He and some partners bought back Pactual for $2.5 billion in 2009 and formed BTG Pactual.
Since then, BTG Pactual has been on a dealmaking frenzy in Brazil and abroad as Esteves tries to make it the largest investment bank in emerging markets by 2020.
BTG Pactual has spent at least $2.5 billion on acquisitions in real estate, finance and services, all areas that have blossomed in the wake of strong job creation. The bank also helped rescue troubled lender Banco PanAmericano in 2011, 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 has also taken a toll on its capital base.
The bank's 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 Brazil's minimum threshold of 11 percent for commercial lenders.
Return on equity - a measure of a bank's profitability - hit 24.2 percent last year, about 5 percentage points above the average in the country's banking system. Profit jumped 71 percent to 1.92 billion reais last year.
In the IPO, São Paulo-based BTG Pactual will offer 72 million units in a primary offering. The sale will be aimed at retail investors and give all buyers the same rights.
Shareholders including Delaware-based Marais LLC, Exor SA and Europa Lux III of Luxembourg will offer 18 million units in a secondary offering. Supplementary and additional lots could increase both primary and secondary offerings by up to 31.5 million units. A sale of global depositary units in Amsterdam will take place simultaneously with the Brazil IPO.
The IPO is expected to price by April 24. The units should begin trading on São Paulo's Bovespa stock exchange on April 26 under the symbol "BBTG11."
Banco BTG Pactual will be the holding company listed in Brazil, while BTG Pactual Participations Ltd will do the same overseas.
($1 = 1.824 Brazilian reais)
(Reporting by Guillermo Parra-Bernal in Sao Paulo; Editing by Lisa Von Ahn and John Wallace)