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Santander To Float Mexican Unit In Record IPO « Back
Selina Harrison, October 2012
Spanish banking group Santander, battling recession at home and the debt crisis in the eurozone, announced in August that it was looking to raise as much as $4.2bn from the planned flotation of part of its Mexican operations. Expected to launch in late September, the listing would be one of the largest IPOs in Mexican history and comes as the country’s economy continues to grow on the back of strong local demand.

Santander, the eurozone’s largest bank by market value, said it will sell 24.9 percent (almost 1.7 billion shares) of Grupo Financiero Santander Mexico. The shares will list on the Mexican Stock Exchange and the New York Stock Exchange, with 20 percent of the shares offered in Mexico City and the remaining 80 percent offered as American Depositary Receipts (ADRs) in New York.

According to a document filed on 4 September, shares are being offered between 29.00 pesos ($2.20) and 33.50 pesos ($2.54), while the ADRs will be priced between $10.99 and $12.70 apiece, with each representing five shares.

The IPO could value the unit at as much as $17.2bn and the total amount raised could rank it as the second-largest new listing of the year, behind Facebook Inc., according to data tracker Dealogic.

A three-week roadshow for investors reportedly began on 4 September, with the shares and ADRs expected to be priced and listed on 25 September and 26 September respectively. Under the symbol BSMX, Grupo Financiero Santander México will become the only Mexican financial institution listed on the NYSE.

Santander’s Mexican subsidiary is the fourth-largest lender in the country by deposits, and accounted for 10 percent of Santander’s profit last year. Santander entered the market in 2000 through the purchase of Mexican bank Serfin for $1.56bn. It sold a 25 percent stake to Bank of America Corp. for $1.6bn in 2002 and bought it back in 2010 for $2.5bn. However, Santander Mexico is highly profitable: it booked $2.4bn in revenue for the 12 months ended 30 June 2012 and has an average return on equity of more than 22 percent.

The IPO builds on Santander’s long-running strategy of having local units trade on local stock exchanges, which executives say raises brand awareness and provides a gauge of how each unit is performing. The main listing for Santander group shares is in Madrid, but units in Chile, Poland and Peru already trade on local exchanges and, in 2007, the banking giant raised roughly $8bn by selling 15 percent of its Brazilian unit, Banco Santander Brasil SA.

“This transaction is another step in our strategy of having quoted subsidiaries,” Santander’s chairman, Emilio Botín said in a statement. “We want to continue playing a part in the growth of Mexico. Our three largest subsidiaries in Latin America will be among the top 100 banks in the world by stock-market value.” The bank shelved plans to list its UK arm earlier this year, but once issues including its acquisition of 318 branches from Royal Bank of Scotland are settled, Santander hopes to float its UK operations by 2014. “Our objective is that in five years’ time, our most relevant units are listed,” Mr Botín said.

Besides Santander’s general global strategy, there are other reasons for the float. The bank has been hurt by a struggling domestic market, buffeted by the European debt crisis. Proceeds from the listing will be used to strengthen the Spanish group’s core capital; the bank estimates the IPO will improve its capital level by roughly 0.50 percentage points.

Meanwhile, rating agency Fitch believes the IPO is a positive move for the bank and highlights the fact that Santander’s capacity to raise capital is greater than that of its Spanish competitors. The offering will “reduce revenue from the region, but is not an indication that Santander is retreating from Latin America. It will also help put a third-party valuation on the bank’s business in Mexico,” the agency said.

Santander is Spain’s largest bank by market value. However, in August the bank reported a first half net profit of $2.2bn, less than half the figure garnered in the same period last year, after the lender was forced to set aside $1.7bn to provision against losses on Spanish real estate loans. Santander’s stock has been languishing at three-year lows on the domestic Spanish exchange because of concerns about the state of the Spanish economy and the region’s banks. However, on news of the float, shares in the bank rose 3.95 percent to $7.23.

Global underwriters and coordinators for the Mexico unit offering will be UBS Investment Bank, Deutsche Bank Securities Inc. and Bank of America Merrill Lynch.

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