UniCredit Investors Are Reaping Europe’s Best Return During Rights Offer

Investors who bought UniCredit SpA (UCG) shares and rights during the bank’s 7.5-billion euro ($9.9 billion) offering are reaping the biggest equity return among the 50 largest companies in the euro region.

The Milan-based bank is the best performer in the Euro Stoxx 50 Index since Jan. 10, gaining 67 percent. UniCredit rights doubled in their 10 trading days through Jan. 20, compared with an average gain of 5.5 percent for 1,160 European securities with a market value above 500 million euros tracked by Bloomberg.

Investors who bought the rights at the end of the first day, Jan. 9, may record a 75 percent gain if they convert them to shares at the Jan. 26 closing price, Bloomberg calculations show. The bank will give preliminary figures about the outcome of the offer as early as today after the close of Milan trading.

“It’s been a great opportunity and some investors saw it,” said Matthias Fankhauser, a fund manager at Clariden Leu in Zurich, which oversees about $100 billion in assets. “UniCredit was lucky with its timing. It’s been a roller coaster ride for them but looks like it’ll end well.”

Debt Crisis

Chief Executive Officer Federico Ghizzoni, 56, bet investors would recognize that the bank’s valuation, which hit a 23-year low this month, didn’t reflect its potential after investors’ confidence rose following the European Central Bank’s record cash injections last month. UniCredit turned to the market for the third time in as many years after the European Banking Authority in December said it needed to boost capital by about 8 billion euros.

Italian bond yields traded near a record high on Jan. 4, when UniCredit announced that it would offer the shares at a 43 percent discount to entice investors. Italian bonds rose yesterday, pushing 10-year yields to the lowest level in seven weeks after the country sold its maximum target at an auction of zero-coupon and inflation-linked debt.

“We bought both shares and rights on the market during the first days of the offer,” said Stefano Girola, who oversees 3 billion euros at Albertini Syz & Co. in Milan. “The performance before the offering was a disaster and the stock traded at depressed multiples, so the valuation was appealing to us. We were right, the stock rose and now it’s fairly valued.”

Rating Upgrades

UniCredit’s gain was also helped by at least seven upgrades by analysts during the rights trading period, according to data compiled by Bloomberg. Most of them cited the shares’ slump in previous weeks as reason for the recommendation.

Foreign institutional investors including Aabar Investments PJSC, the Abu Dhabi-based sovereign-wealth fund, and Capital Research & Management Co., a Los Angeles-based investment fund, were among firms which bought the shares.

Aabar, which held a 5 percent stake before the offer, boosted that to 6 percent and announced Jan. 17 it would increase it to 6.5 percent, making it UniCredit’s biggest investor, according to the lender’s website. Capital Research more than doubled its stake to 5.4 percent.

The rights, which entitled holders to buy two new shares in UniCredit for 1.943 euros each, slumped 65 percent on the first day of trading on Jan. 9, from their indicative price at the end of the previous week. They then jumped 477 percent to close at 2.712 euros at the end of its trading period on Jan. 20.

U-Turn

UniCredit’s shares saw a similar U-turn. The stock on Jan. 9 traded at a tenth of the reported value of the bank’s assets minus liability, a valuation ratio known as price-to-book. That was the lowest level since at least 1998 and a fifth of the price of the Stoxx 600 Banks Index, according to Bloomberg data. The shares then rose 67 percent since the offered started to 3.82 euros yesterday. The bank was down 3.5 percent to 3.69 euros at 9:46 a.m. in Milan.

Ocado Group Plc posted the biggest gain, 51 percent, for the 1,160 securities with a market value more than 500 million euros between Jan. 9 and Jan. 20. The average year-to-date for the group is 7 percent.

The Stoxx 600 has gained 4.4 percent since its 2012 low on Jan. 9 as European Central Bank President Mario Draghi offered unlimited three-year cash to banks at 1 percent and the U.S. Federal Reserve said it may buy additional bonds to help stimulate growth.

Cheap Valuation

UniCredit’s cheap valuation also attracted Italian entrepreneurs. Diego Della Valle, the founder and CEO of luxury goods company Tod’s SpA, may have bought about 2 percent of UniCredit during the same period, newspaper Il Sole 24 Ore said on Jan. 24. A spokeswoman for Della Valle declined to comment on the report. Alessandro Proto Consulting bought a 0.8 percent stake and said it may boost the holding to 1.3 percent.

Some existing shareholders in the bank didn’t buy rights because they’re short of cash following UniCredit’s third stock sale in as many years. Banco di Sicilia’s foundation, which owns a 0.3 percent stake in UniCredit, didn’t take part in the sale, la Repubblica reported Jan. 8, citing Chairman Giovanni Puglisi.

Fondazione Cariverona, which holds 4.2 percent, said last month that it wouldn’t purchase the full share of its rights, diluting the holding to 3.5 percent. Libya’s central bank also didn’t buy stock because it wants to invest funds at home, Ali Shanbish, head of planning at the central bank, said in an interview Jan. 22. The bank owns 5 percent of UniCredit.

The rights offer is fully underwritten by a group of 26 banks led by Charlotte, North-Carolina based Bank of America Corp. and Milan-based Mediobanca SpA. (MB)

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Sonia Sirletti in Milan at ssirletti@bloomberg.net; Zijing Wu in London at zwu17@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Andrew Rummer at arummer@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net

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