* To raise 660 million euros by selling new shares
* Capital increase via placement to investors, rights issue
* Proceeds to help shore up balance sheet
* Erste to repay 1.76 bln euros in participation capital (Adds share details, background)
By Michael Shields
VIENNA, July 1 Austria's Erste Group Bank launched on Monday a share sale to raise around 660 million euros ($858 million) to help repay state aid.
Central and eastern Europe's third-biggest lender announced plans for the capital increase last week, saying it would use the money to help repay 1.76 billion euros in non-voting participation capital it raised in 2009 to help it weather the financial crisis.
Austria provided two thirds of that capital, and private investors the rest.
Erste has said repaying that increasingly expensive capital would save it hundreds of millions of euros and put it on target to have a 10 percent common equity Tier-1 ratio under Basel III rules by the end of 2014.
The bank said on Monday it would sell new shares to selected institutional investors via an accelerated book-building process and via a subscription offering to existing shareholders.
The institutional pre-placement is set to start immediately and end on Tuesday, it said in a statement.
The subscription price in the subscription offering will be identical to the offer price set in the book-building process for the institutional pre-placement.
"The final number of new shares of the capital increase will be determined at the time of pricing of the institutional pre-placement, expected to be on July 2, 2013," Erste said.
Subscriptions for existing shareholders are due to run from July 3 to 17, pending regulatory approval. Trading of subscription rights is planned from July 9 to 11.
Results of the subscription offering are expected to be announced on July 18, with settlement due on or around July 23.
J.P. Morgan Securities, Morgan Stanley Bank AG and Erste Group Bank AG are acting as joint global coordinators and joint bookrunners. Commerzbank and ING Bank are acting as co-lead managers on the capital increase.
Erste shares closed down 0.5 percent at 20.41 euros, up from 13.70 a year ago but off a year high of 26.895 in January.
Its stock fell nearly 10 percent last Monday on news of the capital hike and revised guidance that operating profit could fall as much as 5 percent in 2013 rather than hold steady.
With nearly 395 million shares in issue, Erste has a market capitalisation of just over 8 billion euros, according to Reuters data.
News of its planned capital increase last week raised speculation that Austrian peer Raiffeisen Bank International (RBI) might follow suit. However, Raiffeisen has said it is in no rush to do so.
Raiffeisen got 2.5 billion in participation capital, of which 1.75 billion came from the state.
($1 = 0.7693 euros) (Editing by James Regan and Mark Potter)