UniCredit Sets Discount for $14 Billion Rights Offer at 38%

(Bloomberg) -- UniCredit SpA will sell new shares for more than a third less than their current price in a 13 billion-euro ($14 billion) rights offer aimed at strengthening its capital position.

The bank will sell stock at 8.09 euros a share and offer 13 new shares for every five held, the Milan-based lender said in a statement Wednesday. The offer price is 38 percent less than the theoretical value of the shares excluding the rights, known as TERP.

“The discount is in line with expectations,” said Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities. “Such a discount implies a high dilution for investors who plan to not fully subscribe to shares, and this can increase price volatility when the offer starts.”

Fondazione Cariverona, one of UniCredit’s biggest investors, will subscribe to up to 73 percent of its current 2.23 percent stake, it said in a statement. Another major shareholder, Cassa di Risparmio di Torino, may invest as much as 320 million euros, roughly equivalent to its 2.5 percent stake, La Stampa reported last month.

UniCredit Chief Executive Officer Jean Pierre Mustier is selling stock and assets to cover losses on bad loans and finance his turnaround plans. Mustier is seeking to accelerate the bank’s share offer to repair capital buffers that fell below regulatory requirements at the end of last year as a result of the balance-sheet cleanup.

UniCredit fell 2 percent to 26.08 euros as of the Milan close on Thursday, giving the company a market value of 16.2 billion euros.

Buy Recommendation

Banca Akros SpA said in a note that it’s lowering its target price on UniCredit to 32 euros from 37 euros, but keeping its buy recommendation, after the discount exceeded the 25 percent that it had anticipated in December.

A group of underwriting banks led by Morgan Stanley and UBS Group AG have guaranteed the rights offer, the lender said. UniCredit’s investors can buy stock from Feb. 6 to Feb. 23, and the rights will trade from Feb. 6 to Feb. 17.

Since Mustier became CEO in July of a lender burdened by mounting debt and the slimmest capital buffer among Europe’s big banks, the stock has gained about 40 percent as investors bet on his ability to reshape UniCredit’s finances. In December, he outlined a turnaround plan that included the rights offer, asset disposals and cost-cutting to restore finances and boost the balance sheet.

“The successful completion of the rights issue will enable the bank’s capital requirements to be maintained following the implementation of the measures included in the strategic plan, as well as to align these requirements with those of the best European” systemically important banks, UniCredit said in the statement.

Financial Targets

The bank confirmed its 2019 financial targets, including one for a key capital ratio, even as it took 1 billion euros of additional charges in the fourth quarter. That brought the 2016 annual loss to 11.8 billion euros.

UniCredit’s share sale, which comes after peer Banca Monte dei Paschi di Siena SpA failed to raise 5 billion euros in December, was previously expected to begin after fourth-quarter earnings are released on Feb. 9.

Last year, Banco Popolare SC raised 1 billion euros in a rights offer, pricing new stock at a 29 percent discount on TERP. In 2012, amid the global financial crisis, UniCredit sold shares at a 43 percent discount to raise 7.5 billion euros.

--With assistance from Francesca Cinelli To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net, Chiara Vasarri in Rome at cvasarri@bloomberg.net. To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Ross Larsen, Jon Menon