* New shares offered at 34 percent discount
* End of pricey loans to improve return on equity
* BCP to repay 1.85 bln euros in convertible bonds
(Adds return on equity, capital ratio projections)
By Andrei Khalip and Sergio Goncalves
LISBON, June 24 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
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
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
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",
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)