Shares in Portugal's BES fall towards capital hike price

LISBON Wed May 21, 2014 11:35am EDT

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LISBON May 21 (Reuters) - Shares in Banco Espirito Santo (BES), Portugal's largest listed bank, on Wednesday fell towards the lower price of the bank's planned capital increase of up to 1.045 billion euros, as it warned of "reputational risks" at a holding company that has a stake in it, traders said.

At 1410 GMT shares in BES were 2.25 percent lower at 0.998 euros after earlier hitting a low of 0.975 euros. The Lisbon PSI20 share index was 0.61 percent lower.

"Fundamentally, the shares are falling in the direction of the theoretic price of the ex-rights cash-call, which is slightly above 0.9 euros," said Andre Rodrigues, an analyst at Caixa Banco do Investimento.

BES shares have fallen sharply since the bank said last week it would carry out a rights issue of up to 1.045 billion euros ($1.43 billion), at a discount of about 34 percent to the stock's price before the announcement. The capital increase will be carried out at 0.65 euros per share. The bank is raising the cash to strengthen its balance sheet.

Late on Tuesday, BES said the subscription period in the rights issue would be from May 27 until June 9. As of May 22, shares in BES will no longer carry the rights to the capital increase.

In the document on the capital increase, the bank listed the risks included in the operation. Among them was a warning about the "reputational risks associated with the potential deterioration or perception of deterioration of the financial position of Espirito Santo International (ESI) or its subsidiaries."

Espirito Santo International holds 49 percent of Espirito Santo Financial Group (ESFG), which in turn holds 27.5 percent of BES. In 2013, ESFG posted a loss of 864 million euros, hit by an impairment of 700 million euros due to debt instruments by Espirito Santo International.

"The financial situation of ESI may affect the reputation of BES and its shares," the prospectus document said, adding that an external auditor had found "irregularities in its accounts and concluded that the company represents a serious financial situation."

Jose Novo, a trader at iTrade brokers, said the decline in BES' shares was due to the capital increase but "these risks, which were recognised by BES do not help the shares."

BES was not immediately available to comment.

($1 = 0.7318 Euros) (Reporting By Sergio Goncalves, writing by Axel Bugge. Editing by Jane Merriman)

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