Santander Mexico Prices $4.1bn IPO

Santander Mexico has priced a MXP52.81bn ($4.11bn) IPO, according to sources familiar with the transaction, coming at the midpoint of its price range and delivering Mexico’s largest-ever equity debut. With heavy demand, the issuer could have priced at the top of the range, but left breathing room for investors, many of whom saw fair value at the lower end. In the largest equity sale in LatAm since 2010, the bank priced 1.69bn secondary shares, assuming the exercise of a 15% greenshoe, at MXP31.25 each, versus a MXP29.00-MXP33.50 range. Investors appeared to get their wish of a discount to peer Banorte, with the midpoint seen implying about 10x-11x 2013 price/earnings versus Banorte’s 12x. “This is a high-quality bank and has better operating metrics than Banorte,” says a participating EM portfolio manager, noting low operating costs, and high efficiency and profitability versus the system. “They could have priced at the top of the range, but this is a smarter level. They leave something for investors,” says an ECM banker away from the deal, noting this was a must considering the challenging nature of LatAm new issuance this year. The deal, said to be multiple times oversubscribed values the bank at more than $17bn, and was to be divided into 1.18bn shares in the form of ADRs, representing about 80% of the total transaction, and a Mexican portion made up of 294m shares. The floating of a nearly 25% stake in the Mexican unit will allow the Spanish parent to shore up its finances. Santander now plans to IPO its other major subsidiaries, including Argentina’s Santander Rio. Investors receive exposure to the fourth-largest bank in a system expected to see strong credit growth as Mexico’s economy grows. Santander, UBS, Deutsche Bank and Bank of America Merrill Lynch were global coordinators on the transaction. Barclays, Citi, Credit Suisse, Goldman Sachs, Itau, JPMorgan and RBC were joint bookrunners. Santander, Banamex, BBVA Bancomer and HSBC managed the domestic portion