MEXICO CITY (Reuters) - Banco Santander’s Mexican unit defied gloom in global markets as its newly listed shares rose sharply on Wednesday after its Spanish parent raised $4 billion in a record issue for Latin America’s second-largest economy.
On a day when world stock markets were dragged down by Spain’s financial woes, investors snapped up the new stock in a ringing investor endorsement of the Mexican economy.
Santander Mexico’s chief executive, Marcos Martinez, said the offering was nearly five times oversubscribed. In the United States, Santander Mexico was the most actively traded stock on the New York Stock Exchange in its market debut.
“The interest for the bank and the country is good news for us,” Martinez told Reuters in an interview. “It was exactly the right time to do this in our country.”
“We put in a lot of effort, but we are even a little bit surprised because of the response of the investors,” he added.
Banco Santander (SAN.MC), the bank’s Spanish parent, sold the shares to create extra cash buffers against potential losses from Spain’s property crash, in the latest in a series of national unit disposals.
Shares of the Santander Mexico (SANMEXB.MX) jumped to 33.90 pesos, topping the offer price by more than 8 percent.
The offering, the largest ever by a Mexico-listed company, was priced at 31.25 pesos in Mexico on Tuesday, valuing Santander Mexico at $16.538 billion (12.78 billion euros). The New York-listed shares (BSMX.N) traded at $13.00, after pricing at $12.185 in the offering.
The offering of 25 percent of Santander Mexico’s shares was the second largest in the United States this year behind Facebook (FB.O).
Analysts said the flotation may persuade other banks to launch IPOs, and they pointed to Spanish bank BBVA’s (BBVA.MC) Mexican arm Bancomer as a likely candidate for a dual listing.
Santander embarked years ago on a strategy of splitting off national units and has already listed its Brazilian and Chilean arms. Argentine and UK businesses are soon to follow.
The proceeds from the Mexican listing, estimated at 2.8 billion euros, will be used to boost the capital levels of Santander in Spain, where it is relatively healthy but has taken hits from writedowns from Spain’s deep economic recession.
The bank said in a filing with the Mexican exchange that it sold nearly 1.7 billion shares, including the greenshoe overallotment, in a Mexican and international offering worth 52.8 billion Mexican pesos ($4.12 billion).
That was a 65 percent premium to the $2.5 billion Santander paid in June 2010 for the same-sized stake from Bank of America.
Assuming the greenshoe is exercised in full, the issue would push the bank’s core tier one ratio - a key measure of its strength - to 10.6 percent.
The sale price was in the middle of the range of 29 to 33.5 pesos set by the bank earlier this month.
The Mexican tranche accounted for 19 percent of the shares in the global offering, and the U.S. tranche represented 81 percent.
Santander’s Mexico unit said it sold 319,977,408 shares in its Mexico offering, including the greenshoe, and 1,369,834,925 shares in its international offering, including overallotment.
Since Santander needs to set aside around 2 billion euros to cover potential losses on its real estate assets, investors are worried it could sell more shares in the Mexican unit if it needs more capital, devaluing early investors’ holdings.
Martinez said the bank has no plans to do so.
Shares of the parent bank fell 4.51 percent to 5.924 euros, while Spain's blue chip index Ibex-35 .IBEX declined 3.92 percent. The uncertainties surrounding the Spanish and Greek economies dragged euro zone equities to their worst session in two months on Wednesday.
An independent stress test of Spain’s banking sector earlier this year revealed capital needs of 50 billion to 60 billion euros ($77.7 billion) although Santander is widely expected to present a clean sheet.
If the listing was seen as a test of investor interest in Mexico, the country scored high, analysts said.
Brazil has long been the regional darling of investors, but a recent soft patch there and a slowdown in China’s breakneck growth has now swung the pendulum in favor of Mexico.
In the seven months through July, foreign investors pumped $3.4 billion into Mexico’s stock market compared with $2.9 billion in Brazil.
Santander Mexico, which accounts for about 12 percent of the group’s profits, is forecast to grow on the back of economic expansion projected at 4 percent this year and 2013. It stands to benefit from a growing middle class that is just starting to open bank accounts and take out loans for the first time.
The listing “opens the door for perhaps medium sized or smaller banks to pursue some IPOs,” said Alejandro Garcia, senior banking analyst with Fitch Ratings in Monterrey, Mexico.
Bank of Nova Scotia (BNS.TO) said this month it may sell minority stakes in some Latin American operations, but officials stressed there were no immediate plans.. ($1 = 12.8005 Mexican pesos) ($1 = 1.0000 US dollars) ($1 = 0.7715 euros)
Additional reporting by Louise Egan, Jesus Aguado and Michael O'Boyle in Mexico City and Olivia Oran and Herb Lash in New York; Editing by Dave Graham and Leslie Adler