In another weak year for Latin America's equity capital
markets, two long-awaited bank debuts stood out among the
region's few IPOs.
Both had the international recognition not to be bound to
the fate of the region's smaller deals, offering size and a
clear expansion play and getting several times demand. Both
were enormous successes, but in the end Santander Mexico's IPO
was bigger, has performed better and is likely to represent
more of a watershed moment for its country's equity markets
than BTG Pactual's debut.
For years the Bolsa Mexicana de Valores directors' annual
claims that next year will see "a few more IPOs" were met with
smirks and giggles.
Buoyed by positive economic forecasts, a steadier pipeline
of Mexican debutants now seems a reality. Santander's 52.81
billion peso ($4.11 billion) debut was the biggest Mexican sale
in history and the region's largest IPO since Santander
Brazil's $7.5 billion sale in 2009.
A slate of transactions - Pinfra, Crédito Real, and
Mexichem - immediately followed. More were on the way as of
December, including additional entrants into the new Fibra real
estate fund asset class.
The deal was part of a divestiture plan by the Spanish
parent that was long-expected and much needed. Demand for the
24.9% stake in what is perhaps the group's healthiest asset
reached 4.8 times.
Following a three-week roadshow visiting 12 countries and 24
cities, some 20% of the deal was placed in Mexico and the
remainder as American Depositary Receipts in New York, with 53%
ending up in the hands of international long-only buyers.
Despite investor appetite, the shares were intelligently
priced at the midpoint, rather than the high end of the
proposed 29.00 to 33.50 peso band. The book included numerous
investors that had not previously invested in the region.
"This is the first time that a Spanish-speaking Latin
American company accesses the market in that magnitude and
generates this kind of demand," says Gérard
Crémoux, head of LatAm investment banking at UBS, global
coordinator on the deal with Santander, Deutsche Bank and Bank
of America-Merrill Lynch.
"There hasn't been a $20 billion book for a Spanish-speaking
Latin American company ever. This is the beginning of a new
Barclays, Citi, Credit Suisse, Goldman Sachs, Itaú,
JPMorgan and RBC were joint bookrunners, with Santander,
Banamex, BBVA Bancomer and HSBC managing the domestic
"People aren't invested in Mexico," says Jeffrey Rosichan,
vice chairman of ECM at Deutsche Bank. "Few stocks are liquid.
Only one bank was listed, and banks make great proxies."
The new shares offered an important play into Mexico's
financial space, becoming only the second large bank to be
publicly traded. In addition to the FIG sector's proxy for the
consumer demand growth play, Mexico's banking sector is
famously underpenetrated in the country's population. The lack
of clear comparables, however, presented something of a
challenge, says Facundo Vazquez, head of LatAm ECM at Bank of
America Merrill Lynch.
The shares were offered at a discount to the bank's slightly
smaller rival Banorte, at around 10-11 times 2013
price/earnings compared with Banorte's 12 times. The deal
valued the bank at more than $17 billion.
The shares have remained above offer price, and were up 21%
at 37.98 pesos as of December 1. This came versus a 2.4%
improvement in the Mexican index during that time.
Santander now plans to IPO its other major subsidiaries
around the globe, with Argentina's Santander Río likely
up next in LatAm - assuming the political climate in the
country allows for it.
In an unusual year where ex-Brazil issuance was greater than
Brazilian issuance, bankers, investors and others are hopeful
the shift towards greater non-Brazilian deals is permanent.
Brazil's large investment banks are beefing up their operations
outside of Brazil in anticipation - even in Mexico, as
Itaú's participation in the transaction
Even if the percentage of new ECM issuance in the region
tips back in Brazil's favor in 2013 - and bankers say it could
easily do so if the right names come at intelligent price
levels - all signs point to a continued increase in volume from
outside of Brazil.
While Santander Mexico undoubtedly is the most significant
ex-Brazil deal in years and has created a tangible market
opening, the permanent effects in Mexico's new issue market are
far from clear. Liquidity, and the large volume the in the
index of stocks of businesses controlled by industrialist
Carlos Slim, remains an issue.
Moreover, the country's small and mid-size corporate owners
are still more reluctant than the regional average to open
their companies up to a public listing. The job ahead is
difficult, but Mexico could not have asked for a better start.