February 14, 2018 / 11:26 AM / 6 days ago

Italy's Creval prices 700 million euro new share issue

MILAN (Reuters) - Mid-sized lender Creval (PCVI.MI) will offer new shares at 0.10 euros each from Monday, in a 700 million euro (621.89 million pounds) offer that will test investor demand for Italian banks ahead of a general election.

Italy’s banking sector is restructuring after the country’s deep economic slump. Under regulatory pressure to shed 324 billion euros in soured loans still sitting on their books three years after the recession ended, Italian banks have been raising capital to be able to write them down and sell them off.

Rival Carige (CRGI.MI) in December managed to pull off a 540 million euro cash call despite a 66-percent take up by shareholders.

Creval, Italy’s 10th largest bank, will seek to raise six times its market value in fresh capital while Italy heads to a national election on March 4 from which a clear winner may fail to emerge, keeping markets on edge.

Creval said it would offer shareholders 631 new shares for each one already owned, issuing in total up to 7 billion new shares.

The price of 0.1 euros represents a 16 percent discount to the stock’s theoretical price when excluding subscription rights. Shareholders have until March 8 to exercise the rights and until March 2 to trade them.

Creval’s shares closed down 4.3 percent at 10.23 euros each. The stock has lost 65 percent of its value since the bank announced the bigger-than-expected cash call in early November, the first of a string of Italian lenders that have since stepped up bad loan reduction goals to meet regulatory demands.

Roberto Lottici, a fund manager at Banca Ifigest in Milan, said a price equivalent to around 0.4 times the value of Creval’s assets made the cash call “very interesting.”

He said Italy’s economic recovery, the prospect of higher interest rates, Italian banks’ growing ability to deal with bad debts once recapitalised and possible further mergers ahead made them an appealing investment over the medium term.

“I‘m talking at least two years’ time,” Lottici said.

    Italy’s fragmented and over-branched banking sector is seen as ripe for consolidation as banks need to cut costs to lift low profitability.

    Creval, which reported a 2017 loss of 332 million euros due to loan writedowns, has said the restructuring will prepare it for a merger which is “inevitable.”

    The clean-up will lower bad loans below 10 percent of total lending by 2020 from 21.7 percent at the end of last year.

    “We’re confident the market will react well,” said Andrea Vismara, CEO of Equita SIM, one of the banks backing the cash call.

    However, ahead of the elections, a group of hedge funds has stepped up bets against a string of Italian banks, taking a contrary stance on a sector that has gained 12 percent so far in 2018 and 34 percent in the past year.

    A group of 11 banks, led by Mediobanca (MDBI.MI) and including Banco Santander (SAN.MC), Barclays (BARC.L), Citi (C.N) and Credit Suisse (CSGN.S), is set to sign an underwriting accord to take on unsold shares in the offer.

    There were initially 12 banks but several sources said Jefferies had pulled out before the final signing.

    Additional reporting by Giancarlo Navach; Editing by Jane Merriman

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