Raiffeisen Bank International AG, Austria’s third-biggest lender, plans to sell as much as 2.25 billion euros ($3 billion) in new shares to repay state aid and boost capital ahead of European bank stress tests.
Raiffeisen, which is also the second-biggest bank in eastern Europe, may increase its share capital by more than 40 percent within six months and dilute its majority owners, a group of Austrian cooperative banks, the Vienna-based company said in a statement yesterday.
“We see the potential transaction as an all-important milestone in Raiffeisen’s equity story,” Goldman Sachs Group Inc. analysts led by Pawel Dziedzic said in a report. “However, until completed, the size of the capital increase and remaining uncertainties are likely to remain a meaningful overhang for the shares.”
Chief Executive Officer Karl Sevelda is bringing the bank’s capital buffers in line with competitors like Austria’s Erste Group Bank AG as the European Central Bank scrutinizes lenders’ assets to identify capital shortfalls this year. The exam may require banks to raise as much as $200 billion and damp lending, Ernst & Young LLP said in a report this month.
Raiffeisen dropped as much as 9 percent in Vienna, the biggest decline since December 2011. It pared losses and ended the day 3.8 percent lower at 26.50 euros. The shares fell 19 percent in 2013, compared with a 19 percent gain in the 44-company Bloomberg Europe Banks and Financial Services Index.
Raiffeisen will bring its core equity Tier 1 ratio, a measure of the ability to withstand losses under new European Union rules implementing the Basel III accord, to 10 percent in 18 months, it said in a presentation posted on its website. The ratio was 6.5 percent at end-September, it said.
The bank’s parent, Raiffeisen Zentralbank Oesterreich AG, ultimately owned by 494 cooperative banks, had resisted a dilutive share deal before. RZB will now allow its 79 percent stake to shrink, increasing the portion of the company that’s widely held “significantly,” Raiffeisen said. At the same time, it will take part with a “visible volume, not just symbolically,” CEO Walter Rothensteiner said.
Banca Monte dei Paschi di Siena SpA, a bailed-out Italian bank, on Dec. 28 had to delay a 3 billion-euro share sale also meant to repay state aid after its biggest shareholder demanded more time to repair its own finances.
With the funds raised in the share sale, Raiffeisen will redeem 1.75 billion euros of state aid and 750 million euros of capital linked to the aid. Both are being phased out under the new EU rules and won’t count as core capital from 2017. The lender may also sell as much as 500 million euros in subordinated Tier 1 debt within 12 months, it said.
While the share sale will reduce earnings per share, this effect is muted because after repayment Raiffeisen is saving the interest on the state aid. EPS will be about 10 percent lower in 2016, Barclays Plc said in a note.
Raiffeisen hired Deutsche Bank AG, UBS AG and Raiffeisen Centrobank to manage the share sale. The bank had first flagged the possibility of a capital increase in August 2011, and a majority of analysts surveyed by Bloomberg News had already expected a deal that year. Raiffeisen’s bigger Austrian competitor, Erste Group Bank AG, sold new shares last year to repay state aid, bringing its capital ratio to 10.3 percent.
The decision to go ahead with the share sale came after Raiffeisen dismissed offers for its Hungarian unit “under the current conditions,” according to the statement. The bank didn’t elaborate on who made the bids and how much they offered.
Szechenyi Kereskedelmi Bank Zrt., a bank linked to Prime Minister Viktor Orban’s government that’s 100 times smaller than Raiffeisen Bank Zrt., had offered to buy the unit for a notional price of 1 euro, Hungarian website Napi.hu reported two days ago. That would have meant Raiffeisen had made an additional loss on the disposal, after losing 647 million euros in the period from 2009 through September 2013.
“We wouldn’t be surprised to see some near-term share price weakness, particularly in light of the news that Raiffeisen will not shed its Hungarian business near term, which would have been a welcomed de-risking of the balance sheet,” Citigroup analysts Simon Nellis and Maria Semikhatova said in a note to clients.
While Raiffeisen won’t pursue the sale of its Hungarian business now, it’s still looking at selling its bank in Ukraine, for which it has “several” offers, Susanne Langer, a spokeswoman for the company, said by telephone.