September 29, 2017 / 10:37 AM / a year ago

Italy's Banca Carige sets bond conversion terms in step to raise capital

MILAN, Sept 29 (Reuters) - Italy’s Banca Carige set the terms of an offer to convert its junior debt into senior bonds on Friday as part of efforts to raise capital by the end of the year.

Carige is the last large Italian bank still in difficulty after Rome rescued larger rival Monte dei Paschi di Siena and liquidated two failing regional banks this year.

The European Central Bank has given Genoa-based Carige, Italy’s ninth-largest bank, until the end of December to strengthen its capital base.

Carige said it was offering to convert a 160 million euro ($190 million) Tier 1 bond at 30 percent of its nominal value and three Tier 2 bonds with a combined outstanding amount of 350 million euros at 70 percent of their nominal value.

Bondholders have seven working days to take up the offer at those prices.

The senior notes to be assigned in the exchange carry a 5 percent coupon and have a five-year maturity, it said in a statement.

Senior bonds take priority over junior bonds in the event of liquidation.

A Milan-based trader said the conversion prices were slightly above expectations and had pushed up the market value of the bonds towards the levels set for the swap, especially the Tier 2s which are more liquid.

Heavily exposed to the local economy, Carige has lost nearly 2 billion euros in the past four years, hit by loan writedowns and slumping revenues.

Carige has warned that its business may be at risk if its capital raising plan, which includes a new share issue and asset disposals in addition to the debt swap, does not go through.

Carige aims to reap around 200 million euros from the swap thanks to a capital gain generated by the below-par prices at which it is offering to convert the bonds.

Half of the Tier 1 bond issue is in the hands of insurer Generali which originally bought the entire 160 million euro amount but later sold half.

Bank Intesa Sanpaolo holds another 50 million euros of Carige’s junior debt targeted by the offer. Insurer Unipol is another bondholder. All three institutions have declined to say so far whether they may take up the swap.

The trader said some hedge funds were also among holders of Carige’s subordinated debt.

“The general impression is that the offer may go through, but it’s only one leg of their plan,” the trader said.

Carige is targeting another 200 million euros from asset disposals it is working on.

Its shareholders approved a 560 million euro share issue on Thursday, its third since 2014. ($1 = 0.8466 euros) (Reporting by Valentina Za; Editing by Adrian Croft)

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