Citi to turn to more minority investors after Banamex stake sale

By Kylie Madry

MEXICO CITY (Reuters) – Citigroup has announced its intention to secure additional minority investors for its Mexican retail banking unit, Banamex, ahead of a potential initial public offering (IPO), according to statements made by senior executives on Thursday.

As part of this strategy, Citi plans to engage with prominent Mexican investors in the upcoming months. However, this initiative will focus on smaller equity stakes compared to the 25% ownership that billionaire Fernando Chico Pardo is set to acquire, as explained by Ernesto Torres, Citi’s head of international.

On Wednesday, Citigroup disclosed that Chico Pardo, who leads the airport operator ASUR, will acquire the significant stake in Banamex for $2.3 billion.

STEP TOWARD BANAMEX EXIT

This transaction marks a significant milestone following Citigroup’s prolonged search for a buyer for Banamex, including a previous attempt to sell to Grupo Mexico, led by billionaire German Larrea, that ultimately failed. Analysts have interpreted this development as a favorable indication for Citigroup’s overarching objective of fully divesting from Banamex.

The valuation of the stake positions the entire banking unit at approximately $9.12 billion, establishing a benchmark for an eventual IPO. Notably, Citi had acquired Banamex for $12.5 billion back in 2001.

“This transaction offers a clearer perspective on the potential financial returns from a complete divestiture,” commented Mike Mayo, a bank analyst at Wells Fargo, during a telephone interview.

When queried by Reuters, Torres opted not to elaborate on Citi’s rationale for accepting an offer below the unit’s book value.

BANAMEX BACK IN MEXICAN HANDS

Chico Pardo’s acquisition has been positively received domestically, with Mexican President Claudia Sheinbaum praising the return of Banamex to Mexican control after years under foreign ownership. Under the administration of Sheinbaum’s predecessor, Andres Manuel Lopez Obrador, conditions were imposed on any sale, such as the necessity for majority Mexican ownership and a prohibition on layoffs, which led to Larrea withdrawing his offer, as sources indicated.

Sheinbaum, however, opted not to impose similar conditions, according to Chico Pardo. He stated that his acquisition is self-funded, and he does not plan to increase his stake beyond the 25% mark.

“I view this as a very long-term investment, something that will transcend generations. My children will be the ones to carry it forward,” Chico Pardo elaborated.

Interestingly, he disclosed that he did not partake in the initial bidding process for Banamex as he initially found it difficult to understand the dynamics; however, he initiated discussions with Citigroup in the last several months.

It is worth noting that Chico Pardo is married to the sister of Roberto Hernandez, the former owner and CEO of Banamex.

NEXT STEPS FOR BANAMEX

Both Chico Pardo and Manuel Romo, the CEO of Banamex, mentioned that the focus moving forward will be on reclaiming market share that the bank had previously lost.