Monte dei Paschi di Siena set for €2.5bn rights issue
Struggling Italian bank Monte dei Paschi di Siena will launch its €2.5bn rights issue on Monday, after a group of banks agreed to underwrite the fundraising.
After days of frantic negotiations, the bank said a pool of eight banks including Mediobanca, Bank of America, JPMorgan and Credit Suisse had agreed to guarantee €807mn of the share issue. Milan-based alternative investments fund Algebris has guaranteed an additional €50mn.
The group will mop up unsold shares up to a total of €857mn if investors ultimately shun the rights issue.
The capital raise comes after Italy missed its deadline last year to privatise the bank which had been taken into government control after decades of scandal and financial troubles.
Earlier this year MPS said it risks a capital shortfall of €500mn next year. Outgoing Italian finance minister Daniele Franco has previously said the cash call was a prelude to privatisation.
The Italian Treasury confirmed it would contribute up to €1.6bn to the effort. According to the structure of the capital increase, the Treasury can only invest €1.78 for every euro contributed by investors or guaranteed by the banks.
MPS said it has found investors willing to invest about half of the amount guaranteed by the banks and Algebris. However, only €37mn has been formally committed, while other investors have entered preliminary agreements, the bank said.
Over the past two months, bankers and officials close to the negotiations said French insurer Axa and Italian asset manager Anima, both of which have existing commercial partnerships with MPS, had agreed to commit a combined €250mn.
The two investors have not confirmed such contributions and could not immediately be reached for comment. However, both are likely to chip in a smaller amount, say people familiar with the matter. The size of Axa’s stake is still to be confirmed and Anima is holding a board meeting on Thursday to approve a €25mn contribution.
MPS, which was bailed out by the Italian government in 2017, will sell shares at €2 each. It will sell 374 new shares for every three existing shares.
The proposed share price amounts to a 7.9 per cent discount on MPS’s so-called theoretical ex-rights price — the market price the bank will theoretically have following the rights issue.
The cash call marks the eighth capital increase in under 15 years for MPS. The €2.5bn fundraising is 10 times the size of the lender’s market capitalisation.
Earlier this year the Italian Treasury said the bank needed to raise capital to strengthen its capital buffers and fund voluntary staff exits before moving forward with its privatisation.
Italy was forced to ask the European Commission for an extension to the deadline to privatise MPS after a deal with Milan-based UniCredit fell through at the last minute at the end of 2021.
Chief executive Luigi Lovaglio, a turnround specialist hired this year by prime minister Mario Draghi’s government, has laid out an ambitious growth plan for the lender and is looking at several M&A options, according to several people familiar with his thinking.
International investors have so far shunned the capital raise.
According to three London-based investors who have looked at taking part in the cash call, international investors are concerned about the bank’s record, the outcome of the previous cash calls, MPS’s poor stress test results and litigation risks.
Part of the capital increase will be used to fund 4,000 voluntary exists as part of the chief executive’s cost-cutting plan.
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