Paschi to Sell Stock at Deep Discount in Rights Offering

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Banca Monte dei Paschi di Siena SpA, tapping investors for a second time in a year after failing the European Central Bank’s check-up, will offer shares at a discount of almost 40 percent.

The bank, based in Siena, Italy, is seeking to raise 3 billion euros ($3.4 billion) to repay state aid and bolster capital. It plans to sell the stock at 1.17 euros apiece and offer investors 10 shares for every one held, the company said after markets closed Thursday. At that price, it would be worth 38.9 percent less than its theoretical value excluding the rights based on Thursday’s closing price of 9.38 euros, according to the bank.

“The rights issue is highly dilutive given the majority of the value goes onto the subscription rights,” wrote Luigi Tramontana, an analyst at Banca Akros SpA who doesn’t rate the stock. “The trade in the latter will be key in the next two weeks.”

The stock was up 5.5 percent to 9.9 euros at 2:05 p.m. after dropping as much as 5 percent after the market opened. Monte Paschi has gained 2.8 percent this year, giving the bank a market value of about 2.5 billion euros.

Monte Paschi dilutive share sale may cause price anomalies and high volatility, Italian market regulator Consob said in a statement Friday. “The share price may be overvalued during offer,” the watchdog said. FTSE Group, the index provider for the Italian stock exchange, said in a separate note Thursday that it may apply ad hoc rules to avoid potential issues.

Monte Paschi surged 44 percent in the first two days of the previous share sale a year ago, because of technicalities in the options market and the change in Paschi’s weighting in the FTSE MIB Index linked to the hyper-dilutive rights offer.

Chief Executive Officer Fabrizio Viola is juggling the need to rebuild capital buffers eroded by mounting bad loans with pressure to restore profit at the world’s oldest bank. It raised 5 billion euros last June.

The bank plans to use part of the funds raised in the current offering to reimburse 1.1 billion euros it still owes taxpayers on aid received during the euro-area debt crisis and use the rest to plug the capital gap. The lender had the biggest capital shortfall -- 2.1 billion euros -- of the 25 banks that failed the ECB review of 130 lenders last year.

Monte Paschi’s investors can exercise rights to buy the stock from Monday to June 12. UBS Group AG is leading a group of banks, including Citigroup and Mediobanca SpA, that are underwriting the rights offering. AXA Mutuelles agreed to subscribe to the offer, Paschi said in the statement.

The lender said the government will get a 4 percent stake in the bank under plans to repay state aid due in July with new shares instead of cash.

Monte Paschi, engulfed in legal probes of alleged misconduct by former managers, returned to a profit in the first quarter after 11 straight quarterly losses as the bank earned more from trading and interest costs on state aid fell.

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