Analysis: Spanish cloud may mean discount for Santander Mexico listing

Fri Aug 31, 2012 2:03pm EDT
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By Elinor Comlay and Krista Hughes

MEXICO CITY (Reuters) - Banco Santander (SAN.MC: Quote) will make a splash with a multi-billion-dollar float of its Mexican operation next month, although investors will probably demand a discount to hedge against its links to crisis-ridden Spain.

The listing, which is due in Mexico and New York on September 25 and looks on track to become the biggest ever on the Mexican stock exchange, seeks to take advantage of investor optimism in Mexico.

Mexico's move out of Brazil's shadow has driven the benchmark IPC stock index .MXX to outperform the Bovespa .BVSP so far this year. The Santander listing could encourage other firms to follow suit.

Santander, whose rivals in Mexico are also mostly foreign-owned, hopes to raise $3 billion to $4 billion for a 25 percent stake in its Mexican unit, which has a healthy capital base, an expanding loan book and is No. 2 in Mexico's mortgage market.

Investors in Mexico seem hungry for a stock that will help diversify their holdings in a market dominated by giant telecom companies and retailers.

But as bank shares globally have demonstrated in the last several years, strong capital and a healthy balance sheet are not enough to sustain a stock price in the face of crisis. Santander Mexico may find it hard to shake off a perception it is exposed to its Spanish parent's woes.

"There could be some reputational risk effect, from the association with the Santander name," said Alejandro Garcia, an analyst with Fitch Ratings in Monterrey, Mexico.

Pricing for the deal has not been released, but will be gauged during roadshows in coming weeks in New York, London and Mexico City.   Continued...