--Santander's Mexican unit begins trading in New York
--Shares advances 6% in U.S. debut
--Deal brings parent bank at least EUR2.77 billion
(Updates with closing stock prices, adds comment in paragraphs
nine and 10)
By Chris Dieterich in New York and Amy Guthrie in Mexico City
NEW YORK--The largest stock offering in the U.S. since Facebook
Inc. (FB) hit the market on Wednesday, as shares of Grupo
Financiero Santander Mexico SAB de CV (BSMX, SANMEX.MX) climbed in
dual listings in New York and Mexico City.
Santander Mexico's American depositary receipts climbed 73
cents, or 6%, to close at $12.91 on the New York Stock Exchange, up
from their $12.18 offering price.
Banco Santander SA (SAN, SAN.MC) sold nearly 25% of its Mexican
banking unit in a parallel listing in the U.S. and Mexico. Shares
traded on the Mexican Stock Exchange climbed 6.9%. Each U.S.-listed
ADR represents five Mexican shares.
The offering will bring the parent bank at least 2.77 billion
euros ($3.57 billion), but the total could rise to EUR3.18 billion
if an overallotment option is used. The deal valued the Mexican
unit at about EUR12.8 billion.
Marcos Martinez Gavica, chief executive of Santander Mexico,
attributed investor interest in the IPO to "optimism about
Mexico."
"While the world is complicated, and while the U.S. isn't
growing as fast, domestic demand is allowing the country to grow in
a very solid way and with a great macroeconomic stability," he
said.
Demand for the offer was strong, with underwriters receiving
offers for about five times the amount of shares available, Mr.
Martinez told The Wall Street Journal.
Such strong appetite is a reflection of an optimistic global
view of the Mexican economy, which is seen growing nearly 4% this
year, and expectations of sustained double-digit credit growth for
Mexican banks, which are tightly regulated and
well-capitalized.
Geoffrey Pazzanese, co-manager of the Federated InterContinental
Fund, which has $543 million in assets under management, said the
fund bought some of Santander Mexico's ADRs, although it didn't
receive the full allocation requested.
"If you like a country, typically a way to capture that
investment idea is to invest through the banks," said Mr.
Pazzanese.
Ahead of the initial U.S. trade, dozens of floor brokers huddled
around market-maker Getco LLC's trading post in New York, calling
out their final orders on behalf of institutional clients, as
underwriting banks gauged demand before settling on the first trade
at $12.60, up from the $12.18 offering.
Kenny Polcari, managing director at broker iCap Corporates, said
the pricing went well, as shares got "a little pop, but not too
much."
Also driving investor interest is the dearth of Mexican banking
shares. The country's two biggest banks, BBVA Bancomer and Banamex,
are units of Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC) of
Spain and Citigroup Inc. (C) of the U.S., respectively. Neither of
those units is listed. Together, BBVA Bancomer and Banamex control
39% of Mexico's bank deposits.
Santander Mexico is the country's fourth-biggest lender by
deposits. It represents more than 10% of its parent's profit, and
has a firm foothold in Latin America's second-largest economy by
gross domestic product.
Madrid-based Santander placed 19% of the offering in Mexico and
the rest via American depositary shares in New York, making
Santander Mexico listing the largest U.S. listing since Facebook's
$16 billion initial-public offering in May.
Santander has marketed the Mexican unit as an opportunity for
investors to tap a growing economy with a young population and a
relatively low level of banking services.
Santander Mexico plans to spend roughly $120 million over the
next two years to open 200 additional branches, bringing its total
branch network in Mexico to roughly 1,300. Mr. Martinez highlighted
that the capital outlay will come from Santander Mexico's own
resources, rather than from the funds raised via Wednesday's
offering.
The proceeds from the offering will be used to shore up the
capital position of the parent bank, which retains a 75% stake.
Banks across Spain have been forced to set aside more capital to
cover rising bad loans and troubled property assets. For
Santander--the largest bank in the euro zone by market
value--listing its foreign units has proved a way of raising cash
without selling units outright. Chairman Emilio Botin said earlier
this month that he would like to see all of its big subsidiaries
listed within the next five years. For now, Santander units in
Brazil, Chile, Spain, Poland and Mexico trade on local stock
exchanges.
Santander's Mexican bank is highly profitable, with an average
return-on-equity of more than 22%, according to Mr. Martinez. The
systemwide average return-on-equity for Mexican banks is 14%,
according to July data from Mexican banking regulator CNBV.
The Santander Mexico deal represents the largest U.S.
financial-sector listing since October 2009, when Santander Spain
raised $7.5 billion in a similar dual listing of its Brazilian unit
on the NYSE and in Sao Paulo, according to data tracker Dealogic.
It is the biggest stock offering ever for Mexico, though a handful
of shares-equal to 0.27%--had previously been publicly held.
--Andrea Lopez contributed to this article.
Write to Chris Dieterich at christopher.dieterich@dowjones.com
and Amy Guthrie at amy.guthrie@dowjones.com