Citigroup has turned its focus to an IPO of its Mexican retail banking unit after a planned US$7bn sale collapsed, disappointing investors hoping for a clean exit.
But the bank does not expect to take its Banamex unit public until 2025 at the earliest. The lengthy timeline and potential for further Mexican government meddling in the deal adds considerable uncertainty to the eventual outcome.
Citigroup is considering a dual-listing of Banamex shares in both Mexico and the US, sources at the bank told IFR.
Citigroup CEO Jane Fraser revealed on Wednesday that the bank had shelved the sale of Banamex and would instead pursue an IPO after it formally separates the unit from its institutional business (which Citigroup is retaining) late next year.
Yet the delay in disposing of Banamex represents a blow to Fraser’s broader “strategic refresh” that is intended to close the steep price-to-book discount at which Citigroup's stock trades.
Citigroup shares dropped 3% to US$44.49 on Wednesday following the news, which comes after a fruitless 16-month search to find a buyer.
“Ideally, we would have liked to see an outright sale of the Banamex unit. We believe investors would have considered such an outcome cleaner and fuller than an IPO,” Piper Sandler analyst Scott Siefers wrote in a note to clients. “While the IPO may eventually get us to the same place, it will take much longer to do so.”
Mexican interference?
Mexican president Andres Manuel Lopez Obrador, who has long pushed for the “Mexicanisation” of Banamex, is threatening to complicate the IPO by touting a partial government buyout alongside the IPO.
In a presidential address on Wednesday, Lopez Obrador said Mexico “needs a bank, and [Banamex] is an opportunity”.
Lopez Obrador, a leftist who came to power amid a populist movement in 2018, had meddled throughout the process to sell Banamex.
Banorte, Banco Azteca, the Carlos Slim-led Inbursa, Banco Mifel and Grupo Mexico all ran the rule over Banamex, culminating in a top bid of US$7bn for the business, according to multiple press reports.
Grupo Mexico, run by mining billionaire German Larrea, was the last bidder standing but pulled out just days after the Mexican navy’s May 19 seizure of a railroad operated by one of the company’s divisions.
Larrea had reportedly sought guarantees that the banking industry would not be at risk of similar intervention, though Lopez Obrador told reporters the issue of guarantees was between the buyer and Citigroup.
The proposed government buyout of Banamex alongside the IPO would almost certainly generate far lower proceeds for Citigroup than if it pursues the IPO without government involvement (or holds out for a later sale).
Of the US$7bn that Citigroup would have collected from Grupo Mexico, US$2bn would have to be paid in taxes, Lopez Obrador said. Under his proposal, the government would pay Citi US$3bn for a large stake and give the Mexican public an opportunity to buy the other US$2bn in stock, presumably through an IPO.
Citigroup declined to comment on the merits of Lopez Obrador’s proposal.
Goldman Sachs analysts estimate Banamex could be worth up to US$7.9bn in an IPO, underpinned by a “healthy” credit environment.
