Bloomberg News

BTG Files for Brazil IPO After $1.5 Billion in Takeovers in Five Months

March 01, 2012

Banco BTG Pactual SA, the Brazilian bank led by billionaire Andre Esteves, plans to sell new and existing shares in an initial public offering after pursuing about $1.5 billion of acquisitions in the past five months.

BTG will seek to sell units that represent voting and non- voting stakes, the Sao Paulo-based company said today in a regulatory filing. The firm didn’t disclose how many shares or when it plans to sell them. Banco Bradesco SA, Goldman Sachs Group Inc. and JPMorgan Chase & Co. will manage the offering.

Brazilian banks including BTG and Itau Unibanco Holding SA (ITUB4), the nation’s biggest lender by market value, are expanding to capitalize on the region’s economic growth. BTG said last month it agreed to buy Chilean brokerage Celfin Capital SA for $245 million in cash and 2.4 percent of BTG equity. The deal was at least the fifth the company announced since October, according to data compiled by Bloomberg.

BTG’s IPO “makes one suppose they will keep buying other financial institutions,” Ricardo Almeida, a professor of finance at Insper business school in Sao Paulo, said in a telephone interview. “BTG is a leading investment bank, but even for them it’s very difficult to grow in the Brazilian retail market organically, without acquisitions, because the barriers to entry are too big.”

BTG said it plans to use the proceeds to “continue expanding its businesses” and to improve its “funding structure.”

Amsterdam Exchange

The lender also said it will offer global depositary receipts, which will be listed on the Amsterdam exchange. BTG Pactual Participations Ltd., which is controlled by Esteves, Marais LLC and Europa Lux III S.A.R.L. are the shareholders planning to sell stocks in the offering, according to the prospectus filed in Brazil.

The lender said in February 2011 it would pay 450 million reais ($263 million) for 51 percent of the voting shares of Banco Panamericano SA, the Sao Paulo-based bank bailed out in November 2010 after suspected accounting fraud. Panamericano gave Esteves a partnership with Caixa Economica Federal (CEFN3), Brazil’s biggest mortgage lender. In December, Panamericano and BTG announced the purchase of Brazilian Finance & Real Estate SA, the country’s biggest issuer of real estate-backed securities, for about 1.2 billion reais.

Proceeds from the IPO may help BTG boost capital ratios that Pedro Gomes, financial institutions director at Fitch Ratings, said were falling fast enough to cause concern.

Leverage Ratio

The bank’s core capital ratio, Fitch’s gauge of leverage that measures Tier one capital in relation to total risk- weighted assets, dropped to 14 percent in September from 20 percent in December 2010, Gomes said.

“The IPO plans, if executed successfully, could increase BTG’s equity” and improve the ratio, Gomes said in a telephone interview from Sao Paulo. “More significant pressures in the capitalization levels could be negative for BTG ratings.”

Fitch rates BTG’s external long-term debt BBB-, one level below the Brazilian government’s rating and two below Itau and Banco Bradesco SA, the country’s second-biggest lender by market value. Lower ratings mean BTG pays more to borrow than its rivals.

“BTG has a very good rating for an investment bank in an emerging market, but the bank has a less diversified business model, funding and sources of revenue than Bradesco or Itau,” Gomes said.

‘Strong Risk Controls’

Gomes said BTG ranks among the top three investment banks in Brazil, along with Credit Suisse Group AG and Banco Itau BBA SA, Itau’s wholesale arm. “BTG has strong risk controls, very experienced and capable executives and a flow of recurring revenue that covers fixed costs,” he said.

BTG sold an approximately 16 percent stake in December 2010 to a group of investors that included the Rothschild family and Italy’s Agnelli family, which controls automaker Fiat SpA. Other investors were J.C. Flowers & Co., Government of Singapore Investment Corp., China Investment Corp. and the Abu Dhabi Investment Council. The investors paid $1.55 billion, Fitch said in a report, and are able to select three board members.

Previous shareholders at the time invested an additional $250 million. About 20 percent of the total $1.8 billion went to BTG Investments LP, the bank’s shareholders’ fund that mirrors the ownership structure of BTG Pactual. Fitch said BTG Pactual also received an injection of 271 million reais in December from shareholders.

The 2010 transaction valued BTG at about $10 billion. On the Celfin deal, the 2.4 percent of BTG equity totaled about $355 million, according to a person familiar with the matter, meaning BTG was worth about $15 billion. The bank has 5.68 billion reais in equity and 100 billion reais in assets, according to Fitch.

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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