Sabadell of Spain Boosts Capital Via $1.8 Billion Share Sale

Banco de Sabadell SA, Spain’s fifth-biggest bank, attracted foreign investors, including billionaire Colombian businessman Jaime Gilinski, as it sells 1.38 billion euros ($1.83 billion) in stock.

Sabadell raised 650 million euros by issuing 366.3 million of new shares and selling 30 million treasury shares at 1.64 euros a piece, the Sabadell, Spain-based bank said in filings to regulators yesterday and today. Sabadell will raise a further 732.7 million euros by offering 666 million new shares to existing shareholders at 1.10 euros each, a discount of 39 percent from yesterday’s closing price, it said.

Sabadell and other Spanish banks have been hit by mounting bad loans and weak demand for credit as Spain struggles to emerge from an economic slump in its sixth year. Sabadell said it had structured the sale to allow “new shareholders of significance” to back its future growth and reflect growing interest from international investors.

The company fell 0.1 percent to 1.80 euros at 4:01 p.m. in Madrid after climbing as much as 4.7 percent earlier. That valued the bank at 5.33 billion euros. The benchmark Stoxx 600 Banks Index rose 1.9 percent.

“They are receiving outside investment and that could be construed as a vote of confidence,” Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd. in London, who rates Sabadell underperform, said by telephone. Still, the decision to issue shares “will focus people’s minds on the fact that the capital position of Spanish banks is far from robust,” he said.

Photographer: David Ramos/Bloomberg

A logo hangs on display outside a Banco Sabadell SA bank branch in Barcelona. Close

A logo hangs on display outside a Banco Sabadell SA bank branch in Barcelona.

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Photographer: David Ramos/Bloomberg

A logo hangs on display outside a Banco Sabadell SA bank branch in Barcelona.

Business Plan

Sabadell has a new business plan for 2014 to 2016 that commits it to a cost-to-income ratio, a measure of the efficiency of its operations, of below 40 percent and double digit return on equity, the bank said in a regulatory filing yesterday.

The bank also targets a common equity Tier 1 capital ratio, a key measure of financial strength, of more than 10 percent under Basel III rules, Sabadell said. After Bank of Spain guidance to lenders to limit 2013 dividends to 25 percent of profit, the company said it will aim to pay a cash dividend equivalent to 50 percent of its profit next year.

Capital Pressure

Sabadell’s decision to raise capital may lead investors to speculate over whether other banks in Spain need to take similar steps, said Daragh Quinn, an analyst at Nomura International in Madrid. The capital increase “shows that banks in Spain continue to face significant pressure on capital,” he said in an e-mailed report.

U.S.-based fund Fintech Investment Ltd. and Gilinski committed to buying 275 million euros each in the bookbuild, giving both a stake of about 5 percent in the bank, a spokesman for Sabadell, who asked not to be named in line with company policy, said in a phone interview today.

Deutsche Bank AG (DBK) is managing the sale as joint bookrunner with JPMorgan Chase & Co. (JPM), the terms said. Gilinski owns Colombia’s Banco GNB Sudameris SA, which bought the Latin American operations of HSBC Holdings Plc (HSBA) last year for about $400 million.

The new shares, totalling 1 billion, will be listed on Oct. 8. Sabadell had 2.97 billion shares outstanding prior to the transactions, according to the company’s website.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net

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

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