Paschi Said to Plan Debt-Swap Deadline Before Italian Poll

  • Bank aims to clear path for share sale after vote, people say
  • Troubled lender working to raise 5 billion euros of capital

Banca Monte dei Paschi di Siena SpA intends to rush through provisional bondholder agreements in a debt-for-equity swap before Italy’s Dec. 4 referendum so that a recapitalization plan doesn’t become mired in potential market volatility, according to people with knowledge of the matter.

Collecting replies ahead of the vote should let the bank hold a share sale the same month, assuming markets quickly settle down after the poll, said the two people, who asked to be unidentified because the discussions are private. The bond swap and share sale are parts of an interlinked capital-raising plan, and they will both be scrapped if the bank fails to reach its overall target, they said. No final decisions have been made and the plan could change, they said.

Monte Paschi is also chasing potential anchor investors overseas, the people said, as it works to raise 5 billion euros ($5.6 billion) of fresh capital, a goal equal to about 10 times its market value. The Siena, Italy-based bank has previously said it’s readying a third share sale in two years and preparing to shift 28 billion euros of non-performing loans off its balance sheet through sales and securitizations.

Debt Swap

The debt-swap offer will encompass all of the bank’s about 5 billion euros of junior debt, including short-dated notes, the people said. A final decision regarding the planned inclusion of about 2 billion euros of retail bonds will depend on whether this will entail a lengthy regulatory process, they said. Policy makers have called for special protections for retail bondholders, a cornerstone of bank funding in Italy, after the collapse of four small lenders last year. 

Spokesmen for Monte Paschi and its financial advisers, JPMorgan Chase & Co. and Mediobanca SpA, declined to comment. 

Monte Paschi’s board is due to approve a business plan, including capital-raising measures, at a Oct. 24 meeting. The lender’s shares fell as much as 4.3 percent to 17 cents in Milan trading.

Share Sale

Commitments in the debt swap and the anchor-stake sale would boost Monte Paschi’s finances and reduce the amount it needs to raise in the share offering, the people said. They will also help determine whether underwriters will back the share sale, particularly if there is market volatility following the referendum, the people said. If the stock offer doesn’t go ahead, the debt swap will be canceled, they said. 

The December vote centers on constitutional amendments that would limit the power of the Senate. Prime Minister Matteo Renzi has previously said he will quit if the changes are rejected.

Monte Paschi’s 379 million euros of September 2020 junior notes have fallen to about 65 cents on the euro. They were at about 80 cents when the bank announced plans to raise capital at the end of July.

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