Brazil Broker XP Surges in Debut After $1.96 Billion IPO
(Bloomberg) -- XP Inc., Brazil’s largest brokerage by equity-trading volume, rose 28% in its trading debut after its initial public offering topped expectations to raise $1.96 billion.
Shares of XP, Brazil’s answer to Charles Schwab Corp., opened at $32.75 each in New York trading Wednesday after pricing at $27 Tuesday. The company had marketed the shares for $22 to $25.
The shares closed at $34.46 in New York trading, giving the company a market value of $19 billion. That makes XP more valuable than Banco BTG Pactual SA, Brazil’s biggest standalone investment bank, which is worth $15.7 billion.
The company and its existing shareholders sold 72.5 million shares Tuesday. XP also granted its underwriters the option of selling an additional 10.88 million so-called greenshoe shares, according to a statement.
XP is poised to fully exercise that overallotment option, said people familiar with the matter who asked not to be identified because that information wasn’t public. That would bring the amount raised in the IPO to about $2.25 billion.
The listing is the biggest by a Brazilian firm since finance company Pagseguro Digital Ltd.’s $2.6 billion offering on the New York Stock Exchange in January 2018, according to data compiled by Bloomberg.
$1 Billion Club
The IPO is the fourth-biggest in the U.S. this year, after listings by Uber Technologies Inc., Avantor Inc. and Lyft Inc. It’s one of nine exceeding $1 billion, four of which -- including Uber and Lyft -- are now trading below their offer prices.
XP, with JPMorgan Chase & Co. acting as the stabilization agent, has experienced a smoother trading debut than other listings. SmileDirectClub Inc. fell more than 27% on its first day of trading after its $1.35 billion IPO in September.
XP’s Surge After IPO Gives Its Founder a $1.2 Billion Fortune
The offering was also led by Goldman Sachs Group Inc., Morgan Stanley, XP Investments and Itau BBA. The shares are trading on the Nasdaq Global Select Market under the symbol XP.
XP is based in Sao Paulo and incorporated in the Cayman Islands. Its existing investors XP Controle, General Atlantic (XP) Bermuda and DYNA III Fundo de Investimento em Participacoes were among sellers, according to its filings. Itau Unibanco Holding SA isn’t divesting any of its 49.9% stake, according to the filings.
XP plans to use the proceeds to finance growth, make acquisitions and enter new businesses such as digital banking, payments and insurance. It took over the No. 1 spot for Brazil equity trading this year, surpassing UBS Group AG’s local broker-dealer, according to data compiled by Bloomberg. The broker received a banking license last year and plans to become a full-service lender.
“We’d be interested in business that have synergy with ours, but Brazil’s regulators prevent us from buying other brokers,” founder and Chief Executive Officer Guilherme Benchimol told reporters Wednesday. He said there were no ongoing talks for acquisitions currently.
Benchimol said the company is focused on Brazil, where “banking concentration is still brutal, presenting a big opportunity.” XP’s principal new initiative is creating a bank, which will allow it to launch new products that capture a bigger share of clients’ investments, he said.
He added that he would have liked the company to be listed in Brazil, but couldn’t because of regulations that include restrictions on the dual class structure of its Nasdaq offering. Holders of Class B stock will get 10 votes a share while the Class A shares will come with one vote apiece.
XP said it allowed Brazilian funds to have a bigger share of the IPO than usual, he said.
Inspired by Charles Schwab, the biggest U.S. discount brokerage, XP has been at the forefront of changing the way Brazilians invest by offering middle-class investors products that were once only available to the rich, while luring money away from the nation’s biggest banks at a breakneck pace.
For the nine months ended Sept. 30, XP earned 699 million reais ($169 million) on revenue of 3.7 billion reais, according to its filings.
1.5 Million Clients
The company has more than 1.5 million clients and 350 billion reais in assets under custody as of September, according to its filings. Benchimol has said that he expects the company to have 1 trillion reais under custody by the end of 2020.
Benchimol was 24 when he created XP in 2001 with Marcelo Maisonnave. Originally, they called the company XPTO, a generic placeholder in Portuguese, somewhat like XYZ in English.
After a year, Benchimol sold his car and borrowed 5,000 reais from his half-brother, XP board member Julio Capua, to keep things going, with the firm operating only as a stock brokerage.
The company was reinvented after the 2008 economic downturn, when Benchimol attended a Charles Schwab event in San Francisco, inspiring him to follow its model by creating “the first real one-stop investment shop” in Brazil, Benchimol said earlier this year.
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