Latin America Equity Issue
Priced to sell: Grupo Financiero Santander Mexico attracted US$22bn in demand for its US$4.1bn deal. It was the largest equity transaction in the country’s history and the third-largest IPO in the world in 2012, and was more than five times subscribed. By showing that a stellar story can sell, even in weak markets, it is IFR’s Latin America Equity Issue of the Year.
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It was the roadshow to end all roadshows – a fortnight long, encompassing 35 cities, 12 countries, and more than 150 one-on-one meetings. And when all was said and done, Grupo Financiero Santander Mexico attracted US$22bn in demand for its US$4.1bn deal. With that kind of investor interest, the bank could have pushed pricing but showed restraint instead. The deal was priced on September 25 at Ps31.25 – the mid-point of the indicative range of Ps29.00–Ps33.50 – with the ADS, representing five ordinary shares, at US$12.18.
“Instead of more money, we wanted to be aware of pricing with investors in mind, along with wanting strong secondary trading,” Santander Mexico chief executive Marcos Martinez said. “We are happy to have priced it at the right level and right value.”
“We left upside for buyers while also being extremely mindful of what happened with Facebook,” said Elias Ehrlich, head of the Latin American equity syndicate at Santander.
Not everyone agreed with that pricing, though. An equity banker on the deal called it too conservative: “But they were intent upon making sure it traded well in the secondary market in order to set a solid precedent for more spin-offs of its Argentine and British units. It makes sense, but I do think they could have comfortably gone to a higher part of the range.”
Indeed, the new issue was the most actively traded stock on both the New York Stock Exchange and Mexico’s Bolsa de Valores after the debut, with an offer to a one-day increase of 5.99%.
The offering was 100% secondary, with 1.7bn ADSs placed in its New York offering, and 319m in Mexico, with the full overallotment option exercised. The offering implies a market capitalisation of US$16.5bn, and the multiples are impressive. It carries a 7% premium when it comes to price-to-book value, looking at 2013 estimates. Price-to-net income for 2013 is estimated at 10.78x, or a 12% discount to Banorte.
The number of international investors can’t be overemphasised: in the end, 19% of the deal was sold in Mexico and 81% was sold in the US. The bulk of investors came from the US, with European and Asian funds coming into the fold, Martinez said.
The international tranche was placed in the hands of quality accounts, with the allocation split between long-only accounts (70%) and hedge funds (30%), with over 300 institutional accounts involved.
The bank’s return on equity is 22.5% – “the best in the country”, according to Martinez. In 2010, Santander bought back a 25% stake from Bank of America Merrill Lynch for US$2.5bn, which translates into a 65% profit versus the US$4.1bn of this offering, according to a New York analyst.
The spin-off is crucial for parent Banco Santander, Spain’s biggest bank, as it shores up its own finances. It will retain a 75% interest, increasing its core capital ratios by 50bp from 10.1% under Basel II regulations.
“There were a few [deals] this year [that] bankers were saying would reopen the Latin American equity market, but they never really did,” said an equity banker away from the trade. “Now we see deals launching and pricing, with more coming from Mexico every day.”
Santander, UBS, Deutsche Bank and Bank of America Merrill Lynch were global co-ordinators, with joint international bookrunners Barclays, Citigroup, Credit Suisse, Goldman Sachs, JP Morgan, RBC and Itau. Joint local bookrunners were Santander, Accival, BBVA Bancomer and HSBC.