Slovenia steps in to fund NKBM share issue

LJUBLJANA Thu Nov 22, 2012 4:34am EST

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LJUBLJANA Nov 22 (Reuters) - Slovenia will step in to rescue a 50-million-euro ($64 million) share issue by its second-largest bank after investors shunned the fundraising due to concerns about bad loans.

The finance ministry told Reuters on Thursday the shares in state-owned Nova KBM would be purchased by government investment funds KAD and SOD.

NKBM said earlier in November it would issue 38.5 million new shares at 1.3 euro per share, which would almost double its share capital, in order to raise its Core Tier 1 capital ratio in line with European regulatory demands.

The bank also plans to take on a hybrid loan of 150 million euros so as to reach Core Tier 1 capital ratio of 9 percent from some 6.8 percent at the end of September.

The finance ministry did not say whether the state would also provide the hybrid loan but added foreign investors were not expected to take an interest in the bank until its bad loans were transferred to a new state firm.

"A capital hike with the funds of KAD and SOD is the only alternative for NKBM to meet the demands of the European banking body ... by the end of 2012," the ministry said in a statement.

Rising bad loans in Slovenian banks, mostly state owned, are at the heart of speculation the country could need a bailout next year. At present bad loans in local banks amount to some 6.5 billion euros or 18 percent of gross domestic product.

Parliament in October passed a law which would establish a new company to take over bad loans of state-owned banks and thus enable their privatisation. But trade unions prevented its enforcement by demanding a referendum on the law saying it would lead to a rapid and non-transparent sell-off of state banks.

The government plans to ask the Constitutional Court to reject the referendum request.

Shares of NKBM fell by 4.9 percent to 1.14 euro by 0925 GMT in low volume while the blue-chip SBI index lost 0.9 percent.

($1 = 0.7801 euros) (Reporting by Marja Novak; Editing by Mark Potter)

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