Brazil’s Nubank slashes IPO price by 20% and may be worth ‘only’ US$40 billion

RIO DE JANEIRO, BRAZIL – The institution also announced a substantial list – compatible with the glamour it already has in its investor base – of anchors for the offering, which guaranteed at least US$1.3 billion for the operation, equivalent to R$7.3 billion.

In this list are Sequoia, Tiger, Softbank, Baillie Gifford (which besides Nubank only entered Raízen’s IPO), Sands Capital, Invesco, Counterpoint Global (linked to Morgan Stanley’s asset management company, lead coordinator of the offering), and some funds from JP Morgan.

With the adjustment in the suggested price range, the base offer of the operation, i.e., without additional or supplementary lot, the digital bank’s funding drops from US$3 billion to US$2.4 billion.

In practice, the maximum value that Nubank could be valued at dropped from US$51 billion to US$42.2 billion if shares from the additional and supplemental lots were sold.

In the initial prospectus of the operation, there was no provision for an additional lot, and the supplementary lot, known as greenshoe, could be attended by current shareholders, i.e., it would be secondary (money in the pocket of shareholders) and not primary (money in the company’s cash).

In reais, the institution’s capitalization could vary from R$13.6 billion to R$17.7 billion. Still, it is liquidity for no banker to fail and strength for a lot of growth in an institution that already has almost 49 million registered users in its base.

Since last week, the market began to suspect that this movement could occur, given the change in mood of investors in relation to fintechs. There was great anxiety around the subject among Brazilian investors, although everyone knew that the decision depended exclusively on international investors.

This is because Nubank’s IPO is one of the most awaited in recent years – and without a doubt, the most important event for the capital markets in 2021, both Brazilian and global.

Even though it may come to market worth R$50 billion, or US$9 billion, less than initial forecasts, Nubank’s valuation will be considered epic for the new digital economy. And it will give the institution, which is not yet officially a bank, significant capital to leverage the business.

The mood of investors in the fintech market – which has, of course, also affected Brazil, with falling prices for Banco Inter, Stone, PagSeguro, and so on – has worsened with the opening of the projected long-term interest rate on US Treasury bonds.

The rate embedded in 10-year bonds started November at 1.58% (already rising) and reached 1.67%, a somewhat atypical movement. The rate increases whenever the perception of risk worsens, and, in this case, the trend is strongly related to global inflation.

Now it has dropped to 1.48% due to concerns about the impacts that the pandemic may still have on the global economy – doubts motivated by the Omicron strain, first reported in South Africa. However, the doctor who treated the cases pointed out that only mild symptoms were reported.

The rate increase has caught fintechs at heart because it means an increase in the cost of funding the resources used to grant credit to customers. Despite the heat of the moment, those who study the segment believe that the future will still be divided between large banks that manage to make “their turn of the key” to the more digital world and the successful “fintechs”.

However, the bet is that Nubank will be as regulated in the future as banks are today, either because it will have to turn one or because regulation will bring changes for players that reach a certain threshold.

Especially Brazilian investors who study the digital bank created by David Velez, from an idea back in 2012, after being dissatisfied with the banking service in Brazil, still find the valuation “salty”.

They have no doubts about the execution capacity of the Nubank team or the growth prospects. The big question for these investors and we are talking about the ‘value investing’ popes, is whether it is worth it all.

Even after the price cut, Nubank has a good chance of debuting at the NYSE, worth more than Itaú, which ended yesterday’s trading session valued at US$37.5 billion. Only if it only sells the base offering and at the minimum suggested price would the fintech come in just behind Brazil’s largest private bank, valued at US$34.3 billion.