Erste's Main Holders Set to Lose Influence in Share Sale

Erste Group Bank AG (EBS), Austria’s biggest lender, structured the 660 million-euro ($862 million) share sale it started yesterday in a way that’s set to reduce the influence of key shareholders.

A group of Erste shareholders holding a combined 37 percent of the stock waived their rights to new shares in the transaction, the Vienna-based lender said in a statement yesterday. The biggest, a foundation named Erste Stiftung that owns 20 percent, may even sell some shares to satisfy demand by outside investors, Erste said. The lender announced the sale June 24 to help repay state aid.

“In relation to the planned redemption of the entire outstanding participation capital of 1.76 billion euros in Q3 2013, the capital increase is intended to further strengthen Erste Group’s capital base,” the lender said. “Erste Group expects to meet its targeted 10 percent fully loaded Basel 3 common equity tier-1 ratio by 31 December 2014.”

Erste, trailing only UniCredit SpA (UCG) and Austria’s Raiffeisen Bank International AG (RBI) in eastern Europe, is struggling to balance declining lending revenue with cost cuts and reduce bad debt charges as central and eastern European economies remain mired in slow growth. Chief Executive Officer Andreas Treichl has pledged to bolster earnings this year, mostly by turning around the debt-ridden Romanian unit.

‘Pre-Placement’

Erste began the share sale yesterday with a “pre-placement” to institutional investors that it expects to complete today. Existing shareholders can subscribe to the share sale from tomorrow, according to the company. The price determined in an accelerated bookbuilding in the pre-placement will determine the number of shares offered and the price for the new shares. At yesterday’s closing price of 20.41 euros, the deal’s volume is equivalent to 8.2 percent of Erste’s market capitalization.

Part of the shares allotted in the pre-placement are subject to “claw-back” conditions to ensure shareholders willing to exercise their subscription rights get the shares they are entitled to. Erste Stiftung may sell additional stock to investors to make up for part of the claw-back, Erste said.

Erste Stiftung was created in 1993 and has been the biggest shareholder of Erste Bank since. Among the foundation’s aims is “to secure Erste Group Bank’s independent future as its principal shareholder,” according to its most recent bond prospectus. The charitable foundation also funds social and art projects in Austria and eastern Europe.

Erste didn’t identify the shareholders that waived their rights in the statement. Erste Stiftung and a group of Austrian savings banks are among them, spokesman Michael Mauritz said by telephone. The second-biggest shareholder is Spain’s CaixaBank (CABK), which holds a 9.9 percent stake.

Erste plans to pay back 1.2 billion euros in Austrian government aid raised in 2009 this quarter, as well as 559 million euros in capital linked to the assistance, it said last month. The rights offer is managed by JPMorgan Chase & Co., Morgan Stanley and Erste.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

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

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