PE-backed Santander Consumer USA shares rise 10 pct in debut

  • Shares hit a high of $26.45, valuing company at $9.19 bln
  • Santander plans to boost equity at U.S. unit by up to $2 bln
  • Net gain of 740 mln euros from Santander Consumer USA
  • Strengthening balance sheet before ECB stress tests

The initial public offering consisted of 21.6 percent of the Dallas-based U.S. consumer finance unit, and would reach just under 25 percent with the exercise of the green shoe option.

Of that, 4 percent is being sold by the bank, which will leave it with a 60.7 percent stake in Santander Consumer.

The rest of the shares sold belong to other investors, including private equity firms Centerbridge Partners, Kohlberg Kravis Roberts & Co and Warburg Pincus.

Some analysts and economists forecast U.S. auto sales will rise by around by 1 million from 15.6 million vehicles sold in 2013, the best year since 2007.

“Auto loans have proved to be a good asset class through the credit crisis and are attractive in terms of higher yields and lower credit risk,” said Peter Routledge, analyst with National Bank Financial.

Santander Consumer offers loans through 14,000 car dealers across the United States and has about $25.6 billion of loans outstanding. A majority of the company’s loans are subprime, which have higher yields but also higher default rates.

As of Sept. 30, about $850 billion of auto loans were outstanding in the United States.

Banks such as PNC Financial, Capital One Financial Corp and Toronto-Dominion Bank, as well as smaller credit unions have been expanding their auto-lending business.

Santander Consumer’s shares opened at $25.75 on the New York Stock Exchange on Jan 28 and touched a high of $26.45, valuing the company at $9.19 billion. The offering was priced at $24 per share.

The company, which lends mostly to the used car market, is also pushing into loans for new cars, entering into a 10-year agreement with Chrysler Group LLC in 2013 as the preferred lender.

Santander Consumer has been profitable for the past 10 years, posting a net income of about $582 million for the nine months ended Sept. 30.

The strong debut of Santander Consumer bodes well for other big financial services companies expected to list this year.

Ally Financial Inc, majority owned by the U.S. government, is hoping to go public this year while General Electric Co  plans to spin off of its credit card unit.

IPO activity surged last year as low interest rates and a surging stock market enticed investors. Companies raised $159.7 billion from IPOs globally, a 37 percent increase on 2012, and bankers expect 2014 to carry on where 2013 left off.



Santander, the company’s Spanish parent and euro zone’s biggest lender by market value, has expanded in Latin America and Europe over the last decade and is now looking for pockets of growth in new markets, such as the United States, to make up for weaker business at home.

The Spanish lender said earlier on Thursday that it planned to increase the equity of its U.S. holding company by up to $2 billion to back growth plans.

The lender said it would book a 740 million euro ($1 billion) net capital gain from the partial listing of Santander Consumer.

Like other European peers, Santander is also strengthening its balance sheet ahead of banking stress tests due to be carried out by the European Central Bank later this year.

Santander is also due to list its UK business, although the timing of that flotation, expected for several years now, is unclear.

Tanya Agrawal is a reporter for Reuters News in Bangalore

(This story has been edited by Buyouts)