(Bloomberg) — Nu Holdings Ltd., now Latin America’s most valuable financial company, rose as much as 36% in its trading debut after raising $2.6 billion in a U.S. initial public offering
Shares of the the Brazilian digital bank, whose backers include Warren Buffett’s Berkshire Hathaway Inc., opened trading Thursday at $11.25 after selling for $9 each in the IPO. The shares were up 28% to $11.55 at 1:16 p.m. in New York, giving the the company a market value of $53 billion.
That surpasses the $37 billion market capitalization for Itau Unibanco Holding SA, previously the region’s most valuable financial company. Accounting for employee stock options and restricted stock units, Nubank has a fully diluted value closer to $57 billion.
Nubank sold 289 million shares Wednesday after offering them at a price of $8 to $9, a range that had been lowered last week.
Berkshire bought 10% of those shares, said a person familiar with the matter who asked not to be identified because it wasn’t public. Berkshire didn’t respond to a request for comment sent to Buffett’s assistant.
Berkshire had invested in Nubank in June, taking a $500 million stake valuing the company at $30 billion, a person familiar with the matter said at the time.
Sequoia Capital, which invested $1 million in Nubank in 2013 in a seed round, now has a stake worth $9.1 billion, based on the company’s filings with the U.S. Securities and Exchange Commission. Other top shareholders include DST Global, Tencent and Tiger Global.
SoftBank Interest
SoftBank Group Corp., which passed up investing in Nubank during a 2019 fundraising, had indicated interest in scooping up shares at the IPO, ranking among the deal’s cornerstone investors. Nubank can get to 100 million to 150 million customers in five years and be worth as much as $300 billion, Paulo Passoni, the managing director of the Japanese conglomerate‘s Latin America Fund, said in a webcast Wednesday.
The offering is being led by Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. The shares are trading on the New York Stock Exchange under the symbol NU. Its Brazilian depositary receipts, known as BDRs, will trade on the Sao Paulo stock exchange under the ticker NUBR33.
Nubank adds to the year’s all-time record for listings on U.S. exchanges, with 474 companies raising a combined total of $165 billion, not including blank-check companies, according to data compiled by Bloomberg.
Nubank follows a record wave of Brazilian listings, with almost 50 companies raising more than 65 billion reais ($12 billion) this year. While messy politics and Brazil’s upcoming presidential election have already started undermining the demand for new deals, bankers expect some transactions to move forward in the next couple of months.
Nubank, the world’s biggest standalone digital bank, had more than 48 million customers across Brazil, Mexico and Colombia as of September. It provides easy-to-use financial products that come with relatively low fees.
Expansion Push
The company said it had a $99 million loss on revenue of $1.06 billion for the nine-month period ended Sept. 30. Interest income accounted for $607 million of that revenue, with fees and commissions making up the remainder.
Nubank warned investors to brace for “short-term profit implications” from the firm’s expansion push. The company will use proceeds from the IPO to fuel expansion in Mexico and Colombia, while also pushing forward with acquisitions, Chief Executive Officer David Velez said in an interview.
The company has no current plans to expand beyond those three countries, he said.
“We think there’s an opportunity to start consolidating the fintech market in the countries we operate in,” Velez said.
Brazil, where Nubank derives most of its revenue, is bracing for a tough 2022. Political tensions are mounting ahead of what is widely expected to be a polarizing presidential election and some analysts are already forecasting an economic contraction.
“We all wish to see Brazil growing as fast as possible, but the sad reality is that since we launched as a company we’ve only seen Brazil in bad economic conditions,” he said, citing a prolonged recession followed by the coronavirus pandemic.
“The flip side is that in tough economic environments people get more sensitive about paying crazy fees and higher interest rates, which is good for us because we charge less than our competitors,” he added.
Founders’ Billions
Velez’s stake in the company is now worth $11 billion. His co-founder, Cristina Junqueira, has a stake worth $1.5 billion.
Before creating the startup, Velez spent two years at Sequoia, trying to find an investment in Latin America. Instead he left with an idea of his own.
Velez, who’s Colombian, had a grueling experience opening a bank account in Brazil and enlisted Junqueira, fresh off a stint at Itau’s credit card unit, to help him create an alternative.
Brazil, like much of Latin America, is plagued by expensive financial services that are available to only a limited portion of the population. Century-old banks dominate the market beset by bureaucratic barriers. Still, a high percentage of the region’s 700 million people own mobile phones, making it an attractive target for digital banks.
Class B shares carrying 20 votes each compared with one apiece for the Class A shares sold in the IPO will give Velez 75% of the company’s voting power. Junqueira will control 9.3% of the voting power.
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