Paschi to Proceed With Share Sale, Bigger Swap to Avert Aidby
Banca Monte dei Paschi di Siena SpA will seek to sell shares by the end of the year and extend a debt-for-equity swap in a last-ditch effort to raise 5 billion euros ($5.2 billion) privately and avoid a state rescue.
The swap offer will be increased to 4.5 billion euros and will include its so-called FRESH 2008 hybrid bond, the Siena, Italy-based bank said in a statement on Wednesday. Bondholders have already agreed to exchange about 1.02 billion euros for shares. The swap offer for retail investors as well as the share sales reserved to them are subject to regulatory approval.
“It’s a challenging attempt, with a high execution risk,” said Jacopo Ceccatelli, head of Marzotto SIM SpA, a Milan-based broker-dealer. “It can only be successful if a white knight is available to invest in the bank. I doubt they can get one now after having unsuccessfully tried for months to get commitments from investors around the world.”
Monte Paschi aims to raise enough from the second bond conversion to get a commitment for about 1 billion euros from Qatar’s sovereign wealth fund, while the banks advising the deal would place shares with investors in the market, according to people with knowledge of the matter.
Should the share offering succeed, 28 billion euros of soured loans will bundled into securities and sold to investors, removing them from Monte Paschi’s balance sheet. The capital being raised would be used to cover the bank for losses it would book in selling the troubled loans. If the sale isn’t successful, the conversions of debt to equity would be nullified.
Monte Paschi shares climbed as much as 8.1 percent in Milan trading and were up 4.2 percent at 20.91 euros as of 3:24 p.m. That reduces this year’s decline to 82 percent.
If the private capital increase isn’t successful, the bank would have to seek aid from the government. Under European banking rules, losses must be imposed on bondholders if taxpayer money is used. The state is discussing a so called precautionary recapitalization that would potentially limit bondholder losses, according to people with knowledge of the matter.
The terms and the amount of stock to be sold to investors will depend on the results of the swap, the lender said. In the share sale, 35 percent will be offered to retail investors and 65 percent to institutional investors, including potential anchor investors. Existing shareholders will have first right of refusal to buy 30 percent of the offering reserved to retailers.