Raiffeisen Starts $3.9 Billion Share Sale to Boost Funds

Raiffeisen Bank International AG (RBI), Austria’s third-biggest lender, soared to a one-year high after it started a share sale equal to as much as 2.9 billion euros ($3.9 billion) to boost reserves and repay state aid.

Raiffeisen, which is also the second-biggest lender in eastern Europe, is offering new shares equivalent to as much as half of its existing stock at in this year’s first large bank equity raising ahead of European stress tests, the Vienna-based lender said in a statement yesterday. It could be the biggest deal of a euro-area bank since Deutsche Bank AG in April raised 2.9 billion euros, according to data compiled by Bloomberg.

“The equity issue comes much earlier than what they originally alluded to and it could raise more than expected,” said Eleni Papoula, an analyst at Berenberg Bank who lifted her recommendation on the stock to hold from sell today. “The deal potentially solves Raiffeisen’s capital overhang and brings its capital ratio close to what regulators and markets expect.”

Raiffeisen rose as much as 6.7 percent to the highest intraday level since Feb. 1, and was up 2 percent at 30.50 euros by 11:20 a.m. in Vienna. The shares are the best performer in the 44-company Bloomberg Europe Banks and Financial Services Index this year, after declining 19 percent in 2013.

Photographer: Akos Stiller/Bloomberg

A logo sits on display outside the headquarters of Raiffeisen Bank International AG in Budapest. Close

A logo sits on display outside the headquarters of Raiffeisen Bank International AG in Budapest.

Photographer: Akos Stiller/Bloomberg

A logo sits on display outside the headquarters of Raiffeisen Bank International AG in Budapest.

The market reaction vindicates new Chief Executive Officer Karl Sevelda’s decision to go ahead with a rights offering that a majority of analysts was already asking for three years ago. The deal brings the lender’s capital buffers in line with peers and regulators’ expectations as the European Central Bank prepares to scrutinize assets to identify reserve shortfalls.

Pricing Today

The bank is offering as many as 97.5 million new shares for 28 euros to 29.50 euros apiece in the deal, according to a person with knowledge of the sale who asked not to be identified. The sale, which was first flagged Jan. 8, begins with a pre-placement to selected investors that will be priced today, and the company has sufficient demand to cover the books, the person said. Raiffeisen declined to comment.

The pre-placement will be followed by a rights offering to existing shareholders from Jan. 24 to Feb. 7. To make sure existing shareholders can exercise their rights, as many as 21 percent of the shares allocated in the pre-placement can be “clawed back,” Raiffeisen said.

“The placement could represent a good short-term entry point for the stock,” said Thomas Neuhold, an analyst at Kepler Cheuvreux, who rates the shares a hold.

10 Percent

Raiffeisen plans to bring its core equity Tier 1 ratio, a measure of financial strength under new EU rules implementing the Basel III accord, above 10 percent in the next 18 months with the share sale, retained earnings and asset reductions. It depends on the pricing how close the share sale brings it to that goal already. The capital ratio stood at 6.5 percent at the end of September.

With the funds raised, Raiffeisen will redeem 1.75 billion euros of state aid and 750 million euros of capital linked to the aid this year, it said. The capital is being phased out under new European Union rules and won’t count as core capital from 2017.

Raiffeisen’s bigger Austrian competitor, Erste Group Bank AG (EBS), sold new shares last year to repay state aid, bringing its capital ratio to 10.3 percent. Austrian regulators had demanded it gets to 10 percent as a condition to approving the repayment.

RZB Diluted

Raiffeisen Zentralbank Oesterreich AG, which represents a group of cooperative banks and owns 79 percent of Raiffeisen Bank International, won’t exercise its subscription rights to buy shares and will instead place a 750 million-euro order in the pre-placement, Raiffeisen said. Based on yesterday’s closing price, that would reduce its stake to 61 percent, according to calculations by Bloomberg News.

“The increase in free float and stock liquidity is positive for institutional investors,” Berenberg’s Papoula said. “We also believe this could trigger or speed up the restructuring process of Raiffeisen.”

Raiffeisen is also looking at scaling down or selling subsidiaries in countries where it is losing money or which it now considers too risky. That group includes Ukraine, Hungary and Slovenia, CEO Sevelda has said.

While Raiffeisen halted the sale of its Hungarian business for the time being, it has received indications of interest for a sale of its Ukrainian business, Raiffeisen Bank Aval, and allowed “certain potential bidders” access to some data for a due diligence, the lender said last week.

Ukraine Sale

Raiffeisen Bank Aval is Ukraine’s fourth-biggest bank with 4.5 billion euros of assets. While a third of its loans are non-performing, the lender more than doubled profit after tax to 72 million euros in the first nine months of 2013.

Raiffeisen hired Deutsche Bank AG, UBS AG (UBSN) and Raiffeisen Centrobank to manage the share sale as joint global coordinators. Barclays Plc, BNP Paribas SA, Commerzbank AG, ING Groep NV, and Intesa Sanpaolo SpA are acting as co-lead managers for the transaction.

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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