September 26, 2017 / 9:53 AM / a year ago

Italy's Banca Carige targets compulsory bond swap to help rebuild

MILAN, Sept 26 (Reuters) - Banca Carige will seek bondholder approval to force through a proposed debt conversion which is part of the troubled Italian bank’s capital strengthening efforts.

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

Many Italian banks struggled with a spike in bad loans as a result of the wider European economic slowdown which followed the financial crisis, forcing them to be recapitalised.

Genoa-based Carige, which is Italy’s ninth-largest bank, must raise capital by the end of the year to comply with requirements set by the European Central Bank (ECB).

Carige’s shareholders will gather on Thursday to approve a new share issue for up to 560 million euros ($662 million) and on the same day the board will set the terms of the debt swap, which it plans to launch on Friday.

The bank wants to convert up to 510 million euros in subordinated bonds into senior debt with a lower nominal value so as to reap a capital gain. The offer requires ECB approval.

It is counting on the bond swap and asset sales currently underway to generate around 400 million euros in cash.

The bank said in documents published on its website ahead of the meeting that it would ask bondholders to approve a mandatory conversion of the bonds.

This requires the approval of at least 75 percent of bondholders present at a general assembly, provided that at least 25 percent of them attend.

Carige reiterated that the bond swap was an essential part of its capital raising and said that its success was among conditions to which banks Credit Suisse and Deutsche Bank had tied a pre-underwriting commitment.

The two banks’ pledge to sign an underwriting accord before the launch of the new share issue is also subject to other conditions, including satisfactory feedback from investors.

Carige said it had taken part in meetings with investors in London and Milan to present its new business plan, but did not give any details as to how they went.

The bank estimated at around 37 million euros the costs associated with the new share issue and the bond swap. ($1 = 0.8465 euros) (Reporting by Valentina Za; editing by Alexander Smith)

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