MILAN, Jan 18 (Reuters) - Monte dei Paschi di Siena is unlikely to tap markets with an upcoming 2 billion euro ($2.1 bln) bond as it fears a state guarantee on the issue won’t be enough to draw sufficient investor demand, three sources familiar with the matter said.
Instead of selling the bond to investors the bank plans to use it in repo deals, in which a bank typically lends government bonds overnight to another bank in exchange for cash and buys them back the following day.
The Tuscan bank, which had to be rescued by the Italian state in December after failing to pull off a 5-billion euro capital increase, needs to restore its liquidity after suffering a major deposit outflow last month.
The European Central Bank has since raised the capital shortfall that the bank needs to plug to 8.8 billion euros, meaning the state is set to take a 70 percent stake in the lender.
Monte dei Paschi plans to sell 15 billion euros in debt this year using a special state guarantee provided by the treasury to help weaker lenders, with the first 2-billion euro issue expected shortly.
One of the sources said Monte dei Paschi would likely refrain from issuing the bond on the market as it could struggle to quickly place it, given the uncertainty still surrounding the timing of the state intervention - which should take place by March but still needs to be cleared by European authorities.
Another source said no final decision had been made on the first debt issue.
A second bond worth up to 2 billion euros will follow in February-March and may be sold on the market, the first source said.
The bank, which warned in December it could run out of liquidity in four months, last sold a senior bond on the market in 2014. ($1 = 0.9361 euros) (Editing by Silvia Aloisi)