Last updated: 07:22 / Thursday, 21 August 2014
Chilean Group

ILC Announced Agreement over Banco Internacional

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ILC Announced Agreement over Banco Internacional
  • ILC agreed to terms with Baninter (Banco Internacional, Baninter Factoring y Corredora de Seguros Baninter) in order to acquire the financial holding's controlling interest
  • The agreement will be carried out via holding creation in which ILC will have a 50.79% controlling interest after

Chilean Group Inversiones La Construccion, ILC, agreed to terms with Baninter (Banco Internacional, Baninter Factoring y Corredora de Seguros Baninter controlling stakeholder) in order to acquire the financial holding's controlling interest.

The agreement will be carried out via holding creation in which ILC will have a 50.79% controlling interest after several transactions and capital increases in company subsidiaries.

First, ILC will acquire a stake in the three aforementioned companies (bank, factoring and insurance bróker) from Baninter: (i) a 37.13% stake of the bank, (ii) a 36.94% stake of the factoring company, and (iii) a 50.1% stake of the insurance brokerage company, implying a total price of UF 1,874,461 (~USD 77M) paid by ILC to Baninter.

Second, ILC will subscribe to two capital increases allowing for further stake in the first two companies: (i) the bank will carry out a UF 785,439.8 (~USD 32M) which after the ILC subscription will allow the latter to control a 50.1% stake and (ii) Baninter Factoring will carry out a UF 60,890.9 (~USD 2.5M) also implying a 50.1% stake for ILC.

Lastly, both ILC and Baninter will contribute their assets to the new parent company and will subscribe a shareholder's agreement and joint action, leaving ILC with a 50.8% stake in the parent company.

Bank

The transaction opens up a range of opportunities in that the bank currently operates at a sub-par scale-loan market share is only ~0.6%) implying lower indicators as compared to industry peers. Trouble is current backdrop could worsen due to a higher competitive environment, stricter regulatory requirements, and liquidity and equity management changes post Basilea III implementation.

This environment may allow for business generation and cost synergies once the bank starts operating under ILC holding. Also, the transaction would enhance the company's current equity base, handing over USD 35M in fresh resources enabling a scale uprade. LTM bank NIM is currently at 1.6% with a 68.5% efficiency ratio vs. industry's 2.5% and 46.4%, respectively, which explains the bank's current 5% ROE differential with system's 18%.

Regarding other business they still have no relevant information to arrive to any conclusions, although the bank explains ~90% of capital so previous observations should not vary significantly. In short, they believe this is a long-term bet and short-term returns should not be expected, especially in a less-than-ideal economic backdrop.

Valuation

Available information is still not enough to reach definite conclusions; however, at first glance the transaction multiple seems in line or even higher than other banks with larger scale and profitability. The P/B multiple of the acquisition is ~1.6x, diluting towards 1.3x when pricing-in upcoming capital increases.

The Grupo Security acquisition showed a P/B ratio closer to 1.2x, even though the bank had a larger scale and an even more efficient ROE (~12%), excluding current higher inflation effect, and a 2.8% market share. This leads them to believe the transaction should be relatively neutral on share price.

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