Grupo Aval share issue pricing, sizing aimed at boosting investor appetite - analysts

- Tuesday, March 22, 2011

Grupo Aval share issue pricing, sizing aimed at boosting investor appetite - analysts

Colombian financial services group Grupo Aval's pricing of its upcoming 800mn-1.6bn preferred, non-voting share issue and the fact that bids will be received in packages of at least 7.5mn pesos (US$4,000) are moves designed at creating a strong appetite for the stock, brokerage Bolsa y Renta analyst David Peláez told BNamericas.

On Friday (Mar 18), the group announced it would issue the shares at 1,300 pesos each, or at a 12% discount. The share offer starts Tuesday and will run until April 11.

"The process is very different than previous issues given its major size, as it can raise as much as 2tn pesos. Institutional investors can demand shares more aggressively, as they know they will get a bigger slice of the issue," Peláez said.

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For instance, the country's third largest bank, Davivienda, carried out an IPO in August 2010, issuing 26mn preferred shares at 16,000 pesos. More than 82,000 new stockholders were added, most of them retail investors, with institutional investors receiving far fewer shares than they demanded. The IPO was 13 times oversubscribed.

The 12% discount is in line with what other Colombian financial companies are currently trading, Felipe Gómez, portfolio manager at brokerage Compass Group Colombia, told BNamericas.

"It's not a bargain, but it doesn't look expensive either," he noted.

With the issue, Grupo Aval's shares will probably gain liquidity. To do so, it is important that the group moves forward in providing more information to investors, Gómez added.

Grupo Aval's issue will be carried out locally, and its proceeds will be used to finance the company's projected growth.

The group's main asset - the country's second biggest bank, Banco de Bogotá - is in the process of buying Central American banking group BAC Credomatic for US$1.9bn.

US LISTING?

The issue is part of a process that will see Grupo Aval list shares on the US market. Earlier this month, the group registered the preferred, non-voting shares before the SEC, in what analysts see as another step toward the group's announced IPO abroad, which will likely be carried out soon.

But exactly how the company will carry out its listing abroad is still unclear.

"For now, the strategy of leveraging its local network is very aggressive and should be very successful," Gómez said.

Grupo Aval commands roughly a third of the Colombian system's loans through its chain of four banks. It also owns the country's largest private pension fund manager, AFP Porvenir.

Since the group does not yet have approval from the SEC, it cannot offer shares in the US. If it allocates 100% of the planned funds in Colombia, Grupo Aval may have to carry out a new process to place the rest in the US, Peláez said.

"If they went through all the paperwork, I think they are looking at raising funds abroad, but we don't know for how much or for what. They could have their eyes set on another purchase," the analyst said.

Analysts believe the share issue could increase the group's free float on the Colombian market to 25%, from the current 15%.