--Banorte $3 billion share offer sparks M&A speculation

--Bank says proceeds will pay for recent buys, improve capital

--Two decades of acquisitions have made Banorte Mexico's third-biggest bank

By Amy Guthrie

MEXICO CITY--Grupo Financiero Banorte SAB (GFNORTE.MX, GBOOY) said Wednesday it plans to raise as much as $3 billion via a share offering to finance recently announced acquisitions and strengthen its capital position, leading some to speculate that leftover proceeds could also line a war chest for more purchases.

Mexico's third-largest bank hopes to sell ordinary shares via a primary offering on the Mexican Stock Exchange in early July, coupled with international placements, offering an amount roughly equal to 20% of its market capitalization. Banorte's series O shares fell 4.3% on the Mexican Stock Exchange to 78.07 pesos ($6.05) on concerns that existing investors' stakes will be diluted.

The proposed amount it seeks to raise would cover both of the acquisitions it has announced this year, with about $1.3 billion to spare.

"Maybe they're going to want to buy something big in the coming days," said Jorge Lagunas, a portfolio manager who oversees $200 million at Mexican brokerage Interacciones.

Similarly, Mexican brokerage Ve por Mas said in a note that the dilution of the pending share offering would be "more than compensated" by the growth that could be generated with resources from the placement, for instance if Banorte uses the cash to finance a significant acquisition.

Ideally, some analysts said they'd like to see Banorte apply leftover capital from the pending share offering to boost lending and strengthen the bank's capital position, which Alejandro Garcia, an analyst with Fitch Ratings based in Monterrey, Mexico, described as Banorte's "weakest link."

Banorte officials didn't respond to requests for comment.

Banorte titled one of the documents it filed related to the offering with Mexican securities regulator CNBV "reconquista," Spanish for "reconquest." Mexico's top banks have been in control of foreign institutions since the late-1990s, and Banorte prides itself on being the largest domestic bank controlled by Mexican investors.

Two decades ago, Banorte was a small regional bank, but has grown via acquisitions in recent years. The financial group has more than tripled its assets under management over the past five years, to roughly $140 billion.

Banorte executives say they are trying to pace themselves, and not over-extend on acquisitions. But opportunities keep knocking as struggling European firms seek ways to squeeze cash out of their Latin American businesses.

Earlier this year, Banorte laid down $800 million to cover its half of a purchase, along with Mexico's Social Security Institute, of Spanish group Banco Bilbao Vizcaya Argentaria SA's (BBVA.MC, BBVA) Mexican pension-fund business. That acquisition pushed the bank's capital ratio--a comparison between a bank's capital and assets--to 13.3%, a level that made both Banorte officials and credit agencies uncomfortable. The average capital ratio for Mexican banks as of end-March was 16.6%, while Banorte's was 15.7%.

Banorte began exploring the possibility of a primary share offering among various ways of raising capital.

In February, the bank contracted an $800 million, short-term syndicated loan to help fund the BBVA acquisition. That gave the bank a year of breathing room.

In an April interview, Banorte Chief Executive Alejandro Valenzuela said it might be time for the bank to "take a breather" on acquisitions to digest recent purchases and put the house in order. "Sometimes you have to let opportunities pass," he said, no matter how tantalizing, if the moment isn't appropriate.

But on Tuesday, Banorte announced plans to buy out minority stakes in Mexican pension and insurance joint ventures from Italian partner Assicurazioni Generali SpA (G.MI) for $857.5 million (643.5 million euros). That purchase made the share offering idea more probable, since analysts say Banorte has little wiggle room to raise debt. Banorte had already filed a confidential request in May with the CNBV to sell shares.

Several market participants said they expect healthy appetite among Mexican and international investors for the offering.

"Markets are caught in a storm, and international investors are seeking refuge in companies with good returns. Banorte is one of them," said Rafael Escobar, an equity analyst with Mexican brokerage Vector.

Mexico is in fashion with global investors, since the economy is pegged to expand 3.1% this year and President Enrique Pena Nieto's structural reform agenda is seen bolstering economic growth over the medium term.

The Mexican bourse has welcomed a flurry of activity this year, including equity offerings by Mexican billionaire Carlos Slim's retail firm Grupo Sanborns SAB (GSANBOR.MX) and local PepsiCo Inc. (PEP) bottler Organizacion Cultiba SAB (CULTIBA.MX).

Yet avenues for investing in economic growth via Mexico's financial sector are limited, since the two largest banks are units of BBVA and Citigroup Inc. (C). Together BBVA's Bancomer unit and Citi's Banamex control 39% of Mexican bank deposits.

That scarcity contributed to outsized demand for the September initial public offering of Grupo Financiero Santander Mexico SAB (BSMX, SANMEX.MX), the Mexican unit of Spain's Banco Santander SA (SAN, SAN.MC), which raised EUR3.18 billion. Santander Mexico's underwriters said they received nearly five times more bids than shares available.

Write to Amy Guthrie at amy.guthrie@dowjones.com