Latin America Equity Issue: Nu Holdings’ US$2.85bn IPO

IFR Awards 2021
3 min read
Anthony Hughes

In with the Nu

Nu Holdings went to a lot of trouble to make sure millions of its customers could get a (small) slice of December’s US$2.85bn NYSE/B3 IPO.

In doing so, the Warren Buffett-backed Brazilian digital bank – Nubank – racked up an extraordinary string of records/firsts and solidified its credentials as a powerful force in the push to democratise finance in Latin America.

Not only was Nu the largest fintech to go public in the past decade and one of the top 10 tech IPOs ever, its nearly US$50bn market cap on debut made it Brazil’s third biggest public company, ahead of all the incumbent banks.

Nu also became the first Brazilian company to go public through a dual listing comprising ordinary shares in the US and Brazilian depositary receipts in Brazil.

This atypical structure reflected Nu’s desire to reward its base of 40 million mostly Brazilian customers by reserving one free BDR (each representing one-sixth of an NYSE-listed ordinary share) for those eligible, most of them first-time stock investors.

“We decided that we needed to allow all of our customers to invest in [the IPO], irrespective of the then prevailing conventional wisdom that a public equity offering targeted at Brazilian retail investors was both unnecessary and inconvenient,” said Guilherme Lago, Nu’s CFO.

In the end, 7.5 million individuals collected a free BDR for their loyalty, doubling the number of total investors on the B3 exchange in one fell swoop.

The NYSE listing catered to institutional investors, enabling Nubank to line up its valuation against high-flying US fintechs such as Square, SoFi Technologies and Robinhood.

Things didn’t go entirely to plan for Nu.

To satisfy the Brazilian regulator, Nu and the syndicate led by Morgan Stanley, Goldman Sachs, Citigroup and Nu’s own broker-dealer Nu Invest took the somewhat risky step of filing publicly on November 1 with the price range already on the cover of the registration statement.

“The company decided to take incremental market exposure by way of the Brazilian registration in order to enable its Brazilian clients to become a partner in the business,” said Marcello Lo Re, Morgan Stanley’s head of Brazil ECM.

Yet the required month-long hiatus between filing and the launch of the deal – when the terms are normally first disclosed for a US-only IPO – saw US fintech valuations slump roughly 20% amid a sell-off of growth stocks.

This slide in the comps forced Nu to cut the range by roughly the same amount to US$8–$9 from US$10–$11 previously. But aided by upfront cornerstone demand for half the offering, the marketing effort succeeded in pricing at the top of the revised range. The shares went on to trade up 14.8% to US$10.33 in their debut session on December 9.

“The market really embraced the angle that Nu is a technology company on an accelerated growth trajectory and is not comparable to the large incumbent bricks-and-mortar banks,” said Eduardo Mendez, Morgan Stanley’s head of Latin America equity sales and ECM.

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