UPDATE 1-Portugal BCP opens major capital increase to repay pricey loans

Tue Jun 24, 2014 6:13pm EDT

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* New shares offered at 34 percent discount

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By Andrei Khalip and Sergio Goncalves

LISBON, June 24 (Reuters) - Portugal's second-largest listed bank, Millennium BCP, said on Tuesday it seeks to raise up to 2.25 billion euros in new capital and use most of the proceeds to repay pricey state loans, which it expects will lead to major profitability improvements by 2017.

It said it will offer shares at a subscription price of 0.065 euro per share, which represents a discount of 34 percent from the theoretical ex-rights price based on Tuesday's closing price of 0.1585 euro. The shares have fallen over 22 percent in the past week.

BCP is offering subscription rights for nearly 34.49 million new ordinary shares. The subscription price was set at a ratio of seven new ordinary shares for every four ordinary shares held. It will begin the rights offering after receiving approval from the securities watchdog CMVM and the publication of the prospectus.

The offering comes on the coattails of a successful, but smaller, capital hike by Portugal's largest listed bank, Banco Espirito Santo, that raised 1 billion euros. This month's operation drew strong demand even after the prospectus revealed irregularities at a holding company with a key stake in BES.

BCP said it wants to repay as much as 1.85 billion euros in state loans held in so-called contingent convertible bonds that carry high interest and weigh on earnings. The bank took 3 billion euros of convertible bonds at the height of Portugal's debt crisis in 2012; earlier this year it decided to repay 400 million.

The bank, which has been undergoing a restructuring process under a Brussels-monitored plan, said it will seek to pay back the remaining 750 million euros "no later than the beginning of 2016", a year before the promised repayment deadline.

The repayment via the capital increase "is expected to generate material savings on interest expense and have a further positive impact on the bank's internal capital generation capacity, and enhancing the capital mix and the capital ratios", it said.

BCP also said it expects a massive improvement in its return on equity to around 15 percent in 2017, which compares to minus 6.7 percent registered in March 2014.

After the capital increase, the previously announced sale of the bank's non-life insurance business and the expected adoption of a tax deferral law in Portugal, BCP's fully implemented common equity Tier 1 ratio is expected to stand at 9 percent this year, and by 2017 the ratio should top 10 percent.

Deutsche Bank and J.P. Morgan are acting as joint global coordinators and bookrunners, while Goldman Sachs International and UBS Investment Bank are acting as joint bookrunners.

Last month, Portugal exited its international bailout, of which the lifeline for banks was part. While still suffering from a weak economy, low credit demand and bad loans, many senior bankers, including at BCP, believe the worst is over.

(Reporting by Andrei Khalip; Editing by Leslie Adler)

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