Santander is taking a gamble that market volatility will not return in September at levels that could call off its planned IPO of its Mexican subsidiary.
The Spanish bank plans to sell 24.9% of its Mexican bank and has set a range of between MXP29.00 and MXP33.50 per share, according to the prospectus filed today with the Mexican Stock Exchange, which would raise a maximum of $4.003 billion equivalent at the middle of the range.
Eighty per cent of the deal will be sold as ADRs, with the offer expected to be price between $10.99 and $12.70 per ADR, each of which represents five shares, for a total offer amount of between $3.714 billion and $4.291 billion. At the top of the range the bank would be valued at $17.235 billion.
The price range also implies a maximum valuation of EUR 13.708 billion for 100% of Santander Mexico. In the first half of 2012 the bank’s profit attributed to the group was EUR556 million, up 14.4% on the first half of 2011, and was Santander’s third highest reporting business after Brazil (EUR1.152 billion) and the UK (EUR566 billion).
Santander Mexico would become the first major financial institution listed on the New York Stock Exchange. Santander’s Chairman, Emilio Botín, is in Mexico City today, 5 September, to kickstart the deal’s roadshow. He is expected to tell journalists that the decision to list the its Mexican bank is in line with its strategy to have its major subsidiaries listed in their local markets to enable access to domestic capital markets and facilitate local M&A. Botín will also say local regulators look favourably on locally-listed subsidiaries. The bank still has plans to list its UK subsidiaries when European equities markets stabilise, possibly as soon as next year. It also got close to conducting an IPO of its Argentinean bank Santander Rio before domestic issues put that transaction on ice.
Santander says the IPO is not driven by its need to increase its tier one capital but a source says the deal will raise this capital by 55 basis points. At the end of the second quarter of 2012 the bank’s tier one capital (Basle II) was 10.10%.
Santander has mandated Bank of American Merrill Lynch, Deutsche Bank and UBS to lead the deal with its own investment bank. Bank of America’s bought 24.9% of Santander Mexico in 2003 but sold the stake back in 2010. Sources within Santander say that the 2010 transaction included a clause that required Bank of America to be a lead manager on any IPO that occurred before the end of 2011 and that, although Santander was not contractually required to mandate Bank of America in 2012, it had done so to “tip the hat” to the banks’ former relationship.
As well as important for Santander Mexico this deal would be important for the Latin American – and specifically Mexican – equity markets. If the deal proceeds as intended the $4.2 billion will be the largest ECM deal in Latin America so far in 2012 and the largest placement of shares ever in a Mexican company.
Santander believes investors will pay for the growth potential of the Mexican market. Mexico is one of the largest and fastest growing economies in Latin America but has one of the lowest levels of ‘bankization’.
The IPO is scheduled to price on 25 September and Euromoney will keep updating this story as the deal progresses throughout the months.