UNICREDIT SPA launched a €7.5 billion rights issue at a massive discount yesterday, highlighting the struggle faced by European lenders under pressure to raise capital to counter a spreading debt crisis.
The issue, the biggest by a European bank for more than a year, is aimed at repairing its ravaged balance sheet and meeting stringent capital rules to help restore investor confidence.
The share offer, seen as a litmus test of market appetite for banking stocks in the new year, was priced at a 69 per cent discount to Tuesday’s closing price – a much higher discount than used by UniCredit’s peers in recent rights issues.
Such terms may discourage other lenders from tapping the market to raise money and prompt them instead to shrink the loan book, sell assets or cut jobs and dividends. “UniCredit’s rights issue provides a weak read-across to the rest of the sector and will put additional pressure on those other banks needing to boost capital levels,” said analysts at investment bank Macquarie.
The European Banking Authority has told banks they must find €115 billion of extra capital by June’s end to reach a minimum core capital level of 9 per cent – with lenders in Italy, Spain and Germany needing the most.
At €8 billion, UniCredit’s shortfall is the biggest of any bank after Spain’s Santander, which needs €15 billion to meet the EBA requirements – a crucial plank of efforts by euro zone leaders to avert financial disaster.
Andrew Lim, an analyst at Espirito Santo, said the discount on UniCredit’s capital increase was “massive”: “Whatever way you slice and dice it, UniCredit’s discount is much bigger than for the other banks.
In another sign of the challenges faced, UniCredit said commitments from existing shareholders so far would cover up to 24 per cent of the new share offer – a lower take-up than anticipated.
The consortium of 15 banks underwriting the issue, led by Mediobanca and BofA-Merrill Lynch, was extended to spread the risk of part of the offer not being taken up by the market, and is now made up of 27 lenders.
The rights issue, which will start on January 9th and close on January 27th, represents 60 per cent of the bank’s market capitalisation of €12.5 billion. Analysts calculated the issue price would lead to a 65 per cent dilution of earnings per share in 2012, and predicted the shares would stay under pressure. “We see risks that a substantial rump of the rights issue is left with the underwriters, creating a potential large overhang on the share price,” said Macquarie.
Days before the issue, Blackrock fund cut its stake in the bank to 1.7 per cent from 4 per cent. The Libyan Investment Authority, whose 2.6 per cent holding was frozen during the civil war, has yet to say whether it will sign up to the offer. That could open the door to new investors, with China’s and Singapore’s sovereign funds tipped as possible candidates. – (Reuters)
