Davivienda seen using proceeds from capital increase for purchases abroad

Friday, September 2, 2011

Colombian bank Davivienda's recently announced plan to make a purchase in Chile, Peru or Central America within the next five years while continuing to grow at home will likely be funded by an upcoming share issue, Felipe Toro, senior equity analyst at brokerage Interbolsa, told BNamericas.

Efraín Forero, chairman of the bank, Colombia's third largest, told local newspaper La República that Davivienda is on the lookout for purchases in these markets and that it may consider listing on the integrated stock exchanges of Chile, Colombia and Peru - known as MILA - and on Madrid's Latibex.

In August, Davivienda's shareholders approved broadening the size of its preferred, non-voting shares program to 96mn shares from 50mn, equal to US$1.16bn worth of stock.

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Davivienda went public on the local market in August 2010, issuing 26mn preferred shares, or roughly US$310mn. This means that Davivienda now has the authority to issue 70mn more shares, of which 40mn (or some US$470mn) will probably be issued in October.

Additionally, the bank will allow up to 50% of its ordinary shares to be converted into preferred shares.

Through the equity issue, Davivienda is also looking to provide more liquidity to its stock, add new shareholders and pave the way for a planned listing on NYSE, Toro said.

The size of the bank's planned purchase abroad will depend on the capital increase's final amount, he added.

"The extra issuance could put some short-term pressure on the share price, but something a bit more worrying is if this is the start of a trend of management continually issuing more preferred shares as a way of increasing the company's capital," Latin American financial services firm Celfin said in a report.

"If this is pursued as a strategy, it will be continually dilutive and is something that shareholders will need to think long and hard about," the report reads.

Davivienda's Forero also said that the bank will probably double its size by 2016 given current growth rates.

Davivienda's net lending rose 25% in the year through June, surpassing the system's average growth rate.

Davivienda is owned by the Bolívar group and is Colombia's leading bank in the consumer loan segment.