ECM Awaits Santander Mexico IPO

Santander Mexico is hoping recent supportive signs in the equity markets translate into a successful IPO, when it prices the highly-anticipated MXP49.01bn-MXP56.61bn ($3.72bn-$4.30bn) deal this evening. The well-regarded bank is heard with a book multiple times oversubscribed, with both bankers and investors citing strong equity funds flows last week following European Central Bank and US fed announcements as a positive sign. The close of a $5.17bn tender for shares of Brazil’s Redecard could also mean excess funds looking for reapplication to LatAm financial stocks. As with all equity deals, though, investors say it will come down to price. “The market is ready and people will be receptive. This could be expensive, but Mexico is expensive,” says a London-based EM portfolio manager looking at the deal. Most investors see a pickup to Banorte, the closest publicly-traded comparable, with Banorte trading at 12x 2013 price/earnings and Santander seen offering 10x-11.5x at the price range it gave at launch. “Given the interest, they can price at the top of the range. It is a good banking franchise, but we like to see a margin of safety,” Maclovio Pina, senior equity analyst at Morningstar, tells LatinFinance. His shop finds fair value at MXP29.00 per share, at the low end of the MXP29.00-MXP33.50 price range, a valuation hinging on the bank’s ability to control its main cost pillars while its balance sheet expands going forward. Valuing the bank at more than $17bn, Santander will offer 1.69bn secondary shares, including a 15% greenshoe. The deal is divided into an international tranche of up to 1.18bn shares in the form of ADRs, representing 80% of the total transaction, and a Mexican portion made up of 294m shares. Bankers away from and on the deal say the region’s new issue markets need a well-bid sale pricing at the midpoint or higher followed by strong aftermarket performance to have a hope of opening up the market wider for other new deals. However, even a very succ