Bankia Said to Reach About 30% Free Float After Junior Debt Swap

Bankia SA, the lender ejected from Spain’s benchmark share index last month, will be about 30 percent owned by minority shareholders after a planned debt-for- equity swap, said a person familiar with the matter.

State-controlled Bankia, Spain’s fourth-largest lender, will announce details of an exchange of subordinated debt for new shares this quarter, said the person, who asked not to be identified because the information is private. The transaction will partially offset the reduction of the free float caused by a 10.7 billion-euro ($14.5 billion) recapitalization of the bank with European Union cash.

Concerns that mounting losses at lenders such as Bankia, formed from an amalgamation of savings banks, could contaminate Spain’s public finances helped push the government to seek a European bailout for its banking system last year. Bankia shares fell as much as 34 percent on Dec. 28, the first day of trading after the bourse announced it would eject the firm from the IBEX 35 index from the start of this year.

A Madrid-based official at Bankia declined to comment citing company policy.

The company plans to issue new shares in exchange for as much as 6.5 billion euros of Bankia group’s junior debt after applying discounts of 14 percent to 46 percent, according to a Nov. 28 presentation by Bankia. Such burden-sharing is controversial because the debt includes preferred shares, which were marketed to ordinary depositors as safe yet high-yielding investments as late as 2009.

Bankia rose 7 percent to 47 cents at 9:48 a.m. in Madrid.

Claiming Refunds

The so-called free float would constitute 30 percent to 40 percent of the lender’s equity while the remainder would be controlled by the government, the person said. The level of shares in the hands of minority shareholders could change as retail clients turn to an arbitration mechanism announced by the government in December to claim a refund in cases where bad practice in the selling of the notes is shown.

Banco Financiero y de Ahorros, Bankia’s state-run parent company, owns a 48 percent stake with the remainder in the hands of minority shareholders, according to data compiled by Bloomberg.

The European Commission approved a recapitalization plan for Bankia in December that included making junior debt holders assume losses by swapping the securities for shares. The plan issues 10.7 billion euros of so-called contingent convertible bonds, or cocos, subscribed by the parent and converted into stock early this year.

Bankia will consider returning to the bond markets after completion of the recapitalization, said the person. It may be ready to tap fixed income investors in the second quarter subject to market conditions, the person said.

Bankia Chairman Jose Ignacio Goirigolzarri announced in November plans to cut about a quarter of the workforce and offload 50 billion euros of assets by 2015 as he seeks to set the bank on the path to profit this year after a forecasted 19 billion-euro loss in 2012.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net; Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net Paul Armstrong at parmstrong10@bloomberg.net;

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