Bloomberg News

BTG IPO Leads Statist Brazil Loosening Shackles for Equities

March 27, 2012

Andre Esteves, chief executive officer of Banco BTG Pactual SA, speaks at the Foreign Policy Association's annual Financial Services Dinner in New York on Feb. 23, 2011. Photographer: Jin Lee/Bloomberg

Andre Esteves, chief executive officer of Banco BTG Pactual SA, speaks at the Foreign Policy Association's annual Financial Services Dinner in New York on Feb. 23, 2011. Photographer: Jin Lee/Bloomberg

Back to the game.

That’s where billionaire Andre Esteves is leading Brazil with a share sale that may open the market for initial public offerings and ease the economy’s reliance on government loans.

It’s also one of the meanings Esteves, 43, gives for the acronym in his soon-to-be-public company, Banco BTG Pactual SA, the Sao Paulo-based investment firm that’s doubled its capital and tripled assets under management since he bought the business from UBS AG in 2009.

BTG’s IPO would be the first in Brazil since July, following a year in which Europe’s debt crisis drained investments from emerging-market economies. A successful pricing may show the way for a pipeline of 40 proposed initial offerings that the Sao Paulo stock exchange estimates at $28 billion, and could offer a template for reducing the government’s role as a top provider of loans to private businesses.

“Esteves doesn’t want to be just an aggressive and young investment banker anymore,” said Ricardo Rocha, a finance professor at the Insper business school in Sao Paulo. “He wants to be a lead actor in the Brazilian economy. He wants to expand in Brazil and Latin America in a world in which there is a lack of capital for the big international banks.”

The state has a hand in much of the lending that takes place in Brazil, the world’s second-largest developing economy after China. Credit extended by banks majority-owned by the government grew to 44 percent of the market in January, from 42 percent a year earlier and 34 percent in August 2008, according to central bank data.

Banco Panamericano

Those figures don’t reflect the government’s full reach, because they exclude lenders such as Banco Votorantim SA and Banco Panamericano SA, in which the state owns 49.99 percent of the voting shares.

Brazil also owns some of the country’s biggest firms, including Petroleo Brasileiro SA, the largest company by market value on the Sao Paulo stock exchange, and Centrais Eletricas Brasileiras SA (ELET6), Latin America’s biggest utility.

The government-controlled development bank, known as BNDES, helps finance many of the nation’s largest takeovers. JBS SA, the world’s No. 1 beef producer, sold 3.48 billion reais ($1.9 billion) in convertible bonds to BNDES in 2009 to fund the acquisition of Pilgrim’s Pride Corp. and Bertin SA. From 2000 to 2010, BNDES loaned 11 billion reais to Oi SA and Telemar Participacoes SA and injected an additional 2.6 billion in capital for a restructuring in 2008. Luciano Coutinho, president of BNDES, said at the time that the state’s help was justified to create a company with the scale to compete globally.

A Ministry of Finance official declined to comment on the government’s role in the economy, as did a BNDES official.

Rothschild Family

BTG is owned by Esteves, his executive partners and a group of investors that includes the Rothschild family and Italy’s Agnelli family, which controls automaker Fiat SpA.

The firm will “open the door for other companies to access the capital markets,” said Banco Pactual SA founder Luiz Cezar Fernandes, who is now CEO of Laep Investments Ltd. He said Brazil “needs a strong equity market” to keep growing.

Fernandes, 66, created Pactual in 1983. He says it was meant to be a copy of New York-based Goldman (GS:US) Sachs Group Inc. “with a tropical flavor.” In fact, Esteves sometimes jokes that BTG now stands for “Better than Goldman.”

Officially, the acronym stands for Banking and Trading Group.

‘Sadness’ Over

Fernandes hired Esteves in 1989 as a systems analyst and became his mentor in the investment-banking business, only to be outmaneuvered by his protégé in 1998. That’s when Esteves demanded Fernandes sell him his stake in the bank in exchange for loans Fernandes needed for other business interests. Fernandes, who afterward said Esteves would “sell his own mother to obtain power,” said earlier this month in an interview that the “sadness” of those days is over, and he’s happy BTG is successful enough to go public.

Goldman Sachs tried to buy Esteves’s company before he sold it to Zurich-based UBS AG in 2006 for $3.5 billion, making himself a billionaire in the process. As a UBS executive, he tried to buy the entire Swiss bank in 2007, without success. He repurchased Pactual in 2009 for $2.5 billion.

The bank has been a “growth engine” ever since, said Ceres Lisboa, a banking analyst at Moody’s Corp. Total capital has grown to $4.75 billion from $2 billion during the period, and assets under management jumped to almost $100 billion from $30 billion, according to the company.

Still, Lisboa said most revenue comes from proprietary trading, which is subject to wide swings from quarter to quarter. Gross revenue from that business jumped to 4.6 billion reais in 2011, 70 percent more than in 2010, she said.

‘Volatile’ Revenue

“They have a very active and aggressive proprietary trading area, but it is a volatile source of revenue and increases the bank’s risk,” Lisboa said.

Officials at BTG declined to comment, citing the “quiet period” before the planned IPO.

Service fees from asset management and wealth management, a more stable revenue source, rose to 511.5 million reais in 2011 from 343.4 million reais in 2010. Total service fees, which include broker dealer and investment-banking revenue, climbed to 1.087 billion reais in 2011 from 798.8 million reais a year earlier.

BTG’s earnings were 1.9 billion reais last year, a 19 percent increase from 2010. Return on average equity fell to 24.4 percent from 27.5 percent, still the highest among the top Brazilian banks and, in keeping with the BTG acronym, better than Goldman, which posted a 3.7 percent return on equity for 2011.

M&A Advice

BTG was the No. 1 adviser on mergers and acquisitions in Brazil for 2011 and the second-biggest equity underwriter, data compiled by Bloomberg show. The company was the second-largest in Brazil for fixed-income distribution, up from sixth in 2009, according to Anbima, the local investment-bank and capital- markets association. BTG is sixth in asset management, behind the largest retail banks.

In June, BTG announced its first private-equity fund, with $1.6 billion in total. Partners and employees invested $200 million, while $500 million came from Banco BTG capital, said Carlos Fonseca, head of BTG’s merchant-banking unit. About 15 percent of the bank’s capital is invested in private equity. Esteves said in February he plans to create an investment fund of at least 3 billion reais to tap into infrastructure development in Brazil.

Sister Companies

The IPO will give investors stakes in both Banco BTG and BTG Participations Ltd., the company that owns BTG’s private- equity business. The two sister companies have spent more than $2.8 billion since the beginning of 2009 on about 17 acquisitions, according to data compiled by Bloomberg.

BTG’s investments include Brasbunker Participacoes SA, an off-shore transportation and oil-and-gas-services company, and Brazil Pharma SA (BPHA3), the nation’s biggest pharmacy chain by number of stores.

BTG also invests in real estate, buying control of WTorre Properties SA in 2001 and merging it with BR Properties SA in September. Esteves’s bank owns a 77.4 percent stake in Estapar, Brazil’s largest parking-lot administrator, and a stake in ERSA- Energia Renovaveis SA, one of the owners of CPFL Energias Renovaveis SA, the biggest producer of renewable energy in Brazil.

Panamericano Deal

BTG helped the government in February 2011 when it agreed to pay 450 million reais for 50.01 percent of the voting shares of Panamericano, the Sao Paulo-based bank bailed out in 2010 after suspected accounting fraud. Panamericano gave Esteves a partnership with Caixa Economica Federal, the government-owned bank that’s Brazil’s biggest mortgage lender.

BTG is also a government partner on Sete Brasil Participacoes SA, an oil-rig provider owned by Petroleo Brasileiro SA (PETR4), banks and pension funds.

In December, Panamericano and BTG announced the purchase of Brazilian Finance & Real Estate SA, the country’s top issuer of real estate-backed securities, for about 1.2 billion reais.

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 equity portion totaled about $355 million, according to a person familiar with the matter, meaning BTG was worth about $15 billion.

Esteves’s Stake

Esteves and his partners won’t sell shares in the IPO, and some plan to purchase new ones to avoid diluting their stakes, according to a person familiar with the deal who asked not to be named because the matter is private.

Other stakeholders in the company, like J.C. Flowers & Co., Government of Singapore Investment Corp., China Investment Corp. and the Abu Dhabi Investment Council, may sell their stakes.

Esteves hasn’t yet said how many shares will be sold in the IPO or when the bank will offer them. Proceeds will be used to “continue expanding its businesses” and to improve its “funding structure,” the company said in a filing earlier this month. Goldman Sachs, JPMorgan Chase & Co. and Banco Bradesco SA will coordinate the equity offering.

“BTG isn’t simply collecting fees or trading derivatives; it’s also putting capital to work in productive businesses,” Fernandes, the company’s founder, said. “What Esteves is trying to sell in the IPO is not only a bank but also Brazil.”

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at

To contact the editor responsible for this story: David Scheer at

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