UniCredit sets discount for $14bn rights offer at 38%

Bloomberg

UniCredit SpA will sell new shares for more than a third less than their current price in a 13 billion-euro ($14 billion) rights offer aimed at strengthening its capital position.
The bank will sell stock at 8.09 euros a share and offer 13 new shares for every five held, the Milan-based lender said in a statement. The offer price is 38 percent less than the theoretical value of the shares excluding the rights, known as TERP.
“The discount is in line with expectation,” said Fabrizio Bernardi a Milan-based analyst at Fidentiis Equities. “Such a discount implies a high dilution for investors who plan to not fully subscribe to shares, and this can increase price volatility when the offer starts.”
UniCredit Chief Executive Officer Jean Pierre Mustier is selling stock and assets to cover losses on bad loans and finance his turnaround plans. Mustier is seeking to accelerate the bank’s share offer to repair capital buffers that fell below regulatory requirements at the end of last year as a result of the balance-sheet cleanup.
UniCredit was little changed in Milan trading at 26.72 euros as of 9:03 a.m., giving the company a market value of 16.4 billion euros.
Banca Akros SpA said in a note that is lowering its target price on UniCredit to 32 euros from 37 euros, but keeping its buy recommendation, after the discount exceeded the 25 percent that it had anticipated in December.

Underwriting Banks
A group of underwriting banks led by Morgan Stanley and UBS Group AG have guaranteed the rights offer, the lender said. UniCredit’s investors can buy stock from February 6 to February 23, and the rights will trade from Feb. 6 to Feb. 17, the bank said.
Since Mustier became CEO in July of a lender burdened by mounting debt and the slimmest capital buffer among Europe’s big banks, the stock has gained about 35 percent as investors bet on his ability to reshape UniCredit’s finances. In December, he outlined a turnaround plan that includes the rights offer, asset disposals and cost-cutting to restore finances and boost the balance sheet.
“The successful completion of the rights issue will enable the bank’s capital requirements to be maintained following the implementation of the measures included in the strategic plan, as well as to align these requirements with those of the best European” systemically important banks, UniCredit said in the statement.

Financial Targets
The bank confirmed its 2019 financial targets, including one for a key capital ratio, even as it took 1 billion euros of additional charges in the fourth quarter. That brought the 2016 annual loss to 11.8 billion euros.
UniCredit’s share sale, which comes after peer Banca Monte dei Paschi di Siena SpA failed to raise 5 billion euros in December, was previously expected to begin after fourth-quarter earnings are released on Feb 9. The bank got shareholder approval for its capital-raising plan earlier this month, including a proposal to convert every 10 shares into one new share.
Last year, Banco Popolare SC raised 1 billion euros in a rights offer, pricing new stock at a 29 percent discount on TERP. In 2012, amid the global financial crisis, UniCredit sold shares at a 43 percent discount to raise 7.5 billion euros.