EMEA Equity Issue: Santander's €7.5bn capital increase

IFR Review of the Year 2015
3 min read
Robert Venes

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Few deals can lay claim to breaking records, market perceptions and the hearts of those not involved. Santander’s €7.5bn capital increase achieved all that in a single evening.

Big rarely leaves room for interesting and, with a capital injection of €7.5bn required, the conventional wisdom for a European bank would have been to plump for a rights issue. However, Santander’s chairman Ana Botin had shown she would take difficult decisions since taking charge in September 2014, including replacing the CEO appointed by her predecessor – her father – with the CFO.

With the ECB looking at corporate governance and long-standing concerns about capitalisation, Botin opted to draw a line under the past and launch the largest-ever accelerated bookbuilding ever executed in Europe.

Goldman Sachs was drafted in over the Christmas period – leading to the inevitable conference calls while riding the ski lift – and was convinced an early January trade could work. It even offered to underwrite the whole deal.

In the end, underwriting was split with joint bookrunner UBS, with the US bank taking on two-thirds of the risk. The combined cheque was the largest underwriting ever on an overnight trade.

Wall-crossing to a group of investors on the evening of Tuesday January 6 – only the third trading day of the year – provided momentum for a prompt launch at the Madrid close on the Thursday. Despite the enormous quantum being raised, books were covered in an hour.

“To do this you need €15bn of demand, so you need people to be in for €1bn orders each – and they were,” said co-head of EMEA ECM Christoph Stanger. Sovereign wealth funds were among those putting in large tickets, which included many US$250m orders.

Launching at the start of January was bold, but well considered.

“Investors hadn’t spent any money at that point, they were still risk-on, happy and positive,” said Sam Kendall, global head of ECM at UBS.

Closing just four hours after launch, the deal was priced at a 6.9% discount to the previous day’s close and a 9.9% discount to the last trade on January 8 before the stock was suspended ahead of the deal launch.

The discount was chunky for a trade representing about 10 days’ trading and nearly three-quarters of the stock went to hedge funds. Yet the ABB route was far less disruptive than a drawn-out and heavily discounted rights issue that would have taken months to complete.

“Santander needed to move on,” said Richard Cormack, co-head of ECM at Goldman Sachs. “Rival treasurers were jealous as it was early January and already ‘job done’.”

Rival bankers were devastated. Some had missed the opportunity in succession, with their ties to Emilio Botin counting for nothing. Others simply saw their league table ambitions for the year evaporate, crushed in the first week of January.

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EMEA Equity Issue: Santander's €7.5bn capital increase