A big cross-border equity listing offers some obvious benefits. For one, investors prefer a liquid stock, something more easily achieved by targeting the broad base of dollar-denominated buyers.
But for Grupo Aval, the Colombian holding company that made its debut on the New York Stock Exchange in September with a $1.1 billion listing, there was another advantage. That was to draw in “new, global, sophisticated institutional investors,” says Luis Carlos Sarmiento Gutiérrez, Aval’s chief executive officer.
“Not only are they really good, very sophisticated and knowledgeable, but they are keeping us on our toes,” Sarmiento says. “They are starting to visit us with certain regularity. They know their stuff, and they ask the right questions.”
Aval’s base of institutional investors is restricted in the local market by its ownership of pension fund administrator Porvenir, the country’s biggest, which is not allowed to hold stock in the parent company. Around 88% of the New York IPO was allocated to institutional investors, while 12% went to retail.
“These are investors that trade in companies worldwide and that only trade in companies that pass muster, and to pass muster, you need to be able to convince them of things like adequate governance, returns, prospective growth, etc.,” says Sarmiento.
Aval sold 81.5 million preferred shares in the form of American depositary receipts on September 22 at $13.50 each, in a deal led by global coordinators Goldman Sachs and JPMorgan and joint bookrunners Citibank and Morgan Stanley. Law firms Davis Polk, Gómez-Pinzón Zuleta, Martínez Neira, and Simpson Thacher advised on the transaction.
The share sale had elements of an IPO and a follow-on — Aval’s instruments already traded on the Colombian stock exchange. But because of the debut of the company’s ADRs, LatinFinance considered the transaction to be in the IPO category.
The deal — the largest Colombian ADR offering ever — was a rare bright spot in a tough year for Latin America’s equity markets. Outflows from emerging market equity portfolios, and particularly from Latin American funds, underpinned a difficult climate for companies wanting to issue stock.
Despite this backdrop, Aval’s ability to draw a heavily oversubscribed order book and to print the biggest IPO from Latin America in 2014, makes the transaction stand out.
After trading up in the days after the offering, Aval’s ADRs have since lost value. The shares were changing hands at $13 by the end of November. Sarmiento attributes that to the fall in the Colombian peso, noting that Aval’s stock has risen on the local exchanges since the US listing.
“Part of what moves an ADR is the movement of the peso against the dollar,” he says. By the end of November, the Colombian peso had fallen more than 8% against the US dollar since Aval’s September listing.
“The market has to recognize the devaluation of the peso to figure out the price of the ADR, but when the peso devalues more than the price drop in the ADR, what the market is saying is they’re giving us credit for the performance of the company — but they have to adjust somewhat for the peso.”
Aval was set to begin deploying the cash raised in the fourth quarter, with banking subsidiary Banco de Bogotá first on the list for a capital injection. Further acquisitions were not on the horizon when LatinFinance spoke to Sarmiento in November.
“We’ll probably end up strengthening indirectly the capital position of another one of our banks; that’s still in the works,” he said. “We’ll probably use the remaining money to reduce a little bit the debt position of Aval.” LF
WINNER: Grupo Aval