Monte Paschi Says 1 Billion Euros of Bonds May Be Swapped

  • Bondholders need to agree to debt exchange before equity raise
  • Swap is first step in bank’s 5 billion-euro rescue plan

It's Crunch Time for Monte Paschi

Banca Monte dei Paschi di Siena SpA says it expects holders of junior bonds to swap about a quarter of available notes for equity in the first crucial stage of its 5 billion-euro ($5.3 billion) rescue plan.

Investors are expected to exchange 1.04 billion euros of the 4.3 billion euros of available notes as of Nov. 21, according to a document published on its website at the request of Consob, the financial regulator. Italy’s third-largest bank needs bondholders to agree to exchange their bonds for equity so a subsequent share sale can go ahead, it said last week.

“This is a guess on what might happen,” said John Raymond, an analyst at CreditSights Inc in London. Monte Paschi has previously said that the recapitalization will fail if not enough bonds are swapped and the statement indicates how many they need to go ahead, he said.

Chief Executive Officer Marco Morelli has until year-end to persuade investors to put 5 billion euros of capital into what regulators label as Europe’s shakiest major bank. The Siena-based lender has yet to disclose the so-called anchor investors interested in the capital increase, a “key piece of information,” BNP Paribas SA analysts led by Miguel Hernandez and Geoffroy de Pellegars wrote in a client note Wednesday.

Italian banks have been under pressure ahead of a national referendum on Dec. 4 that may topple the government of Prime Minister Matteo Renzi. Monte Paschi’s shares extended declines, dropping 4.2 percent at 11:35 a.m. in Milan. They have dropped about 82 percent this year.

Monte Paschi separately announced a possible offer for 1 billion euros of deeply subordinated securities, known as Fresh bonds, at 23.2 percent of face value, subject to review by authorities. The notes haven’t paid coupons since 2012 and were quoted at 15 cents on the euro on Wednesday, near the lowest in seven weeks.

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