Davis Polk

Deal in Brief: Santander Mexico IPO
Deal Value: $4.1 billion
Firm’s Role: Issuer’s Counsel
Deal Trivia: Kronfeld and his team drafted 176 iterations of the prospectus.

One public listing is work. A dual listing is even harder. Add to that the Securities and Exchange Commission’s heightened postrecession concerns about banks, its unfamiliarity with the financial markets in Mexico, an uncertain political climate, and a finicky global market, and you have the challenges Grupo Financiero Santander Mexico SAB de CV faced in its dual offering in the United States and Mexico in October 2012, the largest Latin American IPO since 2009.

SanMex’s primary tool in clearing those hurdles and putting the SEC’s worries to rest was a prospectus compiled by its lead outside counsel, Nicholas Kronfeld of Davis Polk & Wardwell. "Large financial institutions are always subject to scrutiny, and even more so in early 2012," says Kronfeld, who works in New York. The document detailed how the bank operated and the risks that accompanied the purchase of its shares by investors. Writing such a document required that Kronfeld understand the nitty-gritty details of SanMex’s operations. "It really came down to traveling to Mexico, meeting with the client, and asking a lot of questions," says Kronfeld, who visited Mexico four times during the yearlong lead-up to the IPO. "Then you revise the descriptions, go through financial statements, and understand the company’s risk."

Gaining the SEC’s stamp of approval is always an arduous process, and for SanMex, its status as the first-ever Mexican bank to go public made things even more complicated. Kronfeld was working off a blank slate, and so was the SEC. "If I’d been doing this for a U.S. bank, for example, I’d look at what other banks had filed with the SEC to see what issues they’d addressed," Kronfeld says, and the SEC would likely complete a similar review process. But in this case, SanMex was a matter of first impression. "That just meant that the SEC had more questions about our documents. It’s not like they’d done 10 of these or even one of these before. There was no knowledge to fall back on," Kronfeld says.

The SEC disclosures that Kronfeld had done for 20 different banks prior to SanMex eased what could have been a tense back-and-forth, says SanMex general counsel Eduardo Fernandez Garcia Travesi.

Kronfeld’s 20-year relationship with SanMex’s parent, Banco Santander, a Spanish bank that retains a 75 percent interest in SanMex, and his proven success on IPOs also made him a no-brainer choice for Travesi. Kronfeld advised Santander on the $7.5 billion IPO of its Brazilian unit in 2009 and the potential $100 million IPO of its Argentine unit, which the bank eventually withdrew last year. "Nick has that special attribute in that he has a good attitude no matter the circumstances," Travesi says. "And his previous experience with our parent company in other jurisdictions made him the best choice for us."

Kronfeld’s work on the SanMex IPO began in the fall of 2011. The company submitted its initial prospectus to the SEC in the early summer of 2012 and SanMex spent most of September in a road show for investors. The SEC signed off on the offering and the IPO priced on September 25, 2012. It began trading the next day.

When Travesi considers the success of the offering, his assessment goes beyond the $4.1 billion in new capital it brought to the bank. "Because this was the largest-ever offering by a Mexican issuer, it did a lot to boost Mexico’s reputation in the global market," he says.

As an IPO veteran, Kronfeld is well aware that every offering comes with its own set of pressures. "If it’s a small company and you’re working with the founders, the offering is a very personal process," Kronfeld says. "[But] in this instance, there was a national interest at stake."