MADRID – Banco Santander SA, the parent company of Sovereign Bank, agreed to sell $2.7 billion of bonds that must be converted into stock in its Brazilian unit to Qatar Holding LLC as Spain’s biggest bank seeks to raise funds following acquisitions.
The exchange price for the three-year bonds will be 23.75 reais ($14.22) a share, Santander said on Monday in a filing to regulators in Madrid. The bonds pay an annual coupon of 6.75 percent, it said. The converted stock represents a 5 percent stake in Santander’s Brazilian unit, which closed at 24.88 reais a share on Oct. 15.
The Spanish lender, which still owned 83.6 percent of its Brazilian bank after an initial public offering last year, had to sell more shares to comply with securities regulations that mean the company must have 25 percent of its shares traded on the Sao Paulo stock exchange. Madrid-traded Santander shares rose today as investors speculated the sale may reduce the likelihood of a capital increase, according to Daragh Quinn, an analyst at Nomura International Plc in London.
“The market’s conclusion will be that the more they strengthen group capital, the less likely it is that they will have to consider a capital increase,” Quinn, who rates Santander shares “neutral,” said in a phone interview.
‘A Bit Generous’
“They sold shares in the IPO at 23.50 reais and now they are selling to the Qataris at 23.75 reais, which looks a bit generous to them,” said Bill Rudman, who manages about $1.5 billion, including Santander Brazil shares, at Blackfriars Asset Management in London. “The news is neutral to a little bit negative.”
Santander has spent at least $10 billion since June buying up businesses from Poland, where it agreed to pay 2.94 billion euros ($4.1 billion) for 70 percent of Bank Zachodni WBK SA, to the U.K., where it’s buying 318 branches of Royal Bank of Scotland Group Plc for 1.7 billion pounds ($2.7 billion).
The purchases announced this year will shave as much as 1.4 percentage points from its core Tier 1 capital ratio, a measure of financial strength that stood at 8.6 percent at the end of June, according to Santander estimates. Even so, the bank expects to be able to keep the measure above 8 percent in 2011 as it generates capital from earnings.
Qatar Investments
Qatar Holding is the investment arm of the Qatar Investment Authority, the Persian Gulf country’s sovereign wealth fund that is a shareholder in Volkswagen AG, Barclays Plc and J Sainsbury Plc. The fund may spend $30 billion this year, matching the value of investments last year, the country’s Prime Minister Sheikh Hamad Bin Jasim Bin Jaber Al-Thani said in March.
Qatar bought Harrods Ltd., owner of the London department store, for $2.2 billion earlier this year and agreed to invest $2.8 billion in an initial public offering by Agricultural Bank of China Ltd. The Qatar Investment Authority intends to invest $5 billion in Greece’s economy, according to a memorandum signed between the two countries last month.
“The reference price is not that far from the market price, so I’d say Qatar Holding is getting a good deal,” said Fabio Cardoso, a partner at Adinvest Consultoria, a Rio de Janeiro-based equity consulting firm. “It looks like a good deal for both, because Santander opens up a new channel for capitalization.”
The sale will allow Santander’s Brazil unit to achieve its commitment of having a free float in the stock market of 25 percent by the end of 2014, the bank said.
“This investment means the incorporation of Qatar Holding as a strategic partner of the Santander Group in Brazil and the rest of Latin America,” the Spanish bank said. Barclays Capital advised Qatar on the transaction, Qatar Holding said.
