* Rights issue to repay state aid, bolster finances
* Issue at a 35.5 percent discount to the TERP
* Rights fall as much as 10 percent
(Adds Monte Paschi's share price on German market)
By Silvia Aloisi
MILAN, June 9 Bailed-out Italian bank Monte dei
Paschi di Siena launched a 5 billion euro ($6.9
billion) share sale on Monday, seeking to repay state aid and
bolster its finances in preparation for a pan-European review of
The share issue is one of nine capital increases already
completed or due to be launched this year by Italian banks after
the country's longest recession since World War II.
Monte dei Paschi, whose fundraising comes as Germany's
Deutsche Bank is raising 8.5 billion euros, had originally
planned to tap investors for 3 billion euros.
But soaring bad loans at the bank led it to increase the
issue to 5 billion euros, nearly twice its market
Italy's third-biggest lender, the world's oldest bank still
in business, needs the cash to partly repay 4.1 billion euros of
state aid it was forced to take last year after being hit by the
euro zone debt crisis and loss-making derivative trades.
Reimbursing the bailout is a key condition for avoiding
nationalisation. On Monday, the bank said the treasury had
agreed to let it defer interest rate payments on the state loans
by a month, so it could pay those in cash rather than shares.
The money from the cash call will also be used to cover
risks stemming from its loan portfolio, which has the highest
proportion of non-performing loans among Italy's largest banks.
A senior banker close to the consortium of underwriters led
by UBS said investors' mood towards Italian banks was
positive and he expected the share sale to go smoothly.
"The main catalyst for investors is Italy's recovery,
because Monte Paschi is one of the best levered plays on an
economic pickup. The valuation today is still relatively cheap,
it has still some catching up to do with other Italian and
European banks," he said.
"There is also an M&A (mergers and acquisitions) angle. It's
early days but maybe in 2015, after the asset review, Monte dei
Paschi could be player," he added, referring to speculation that
Monte dei Paschi could be a takeover target.
Monte dei Paschi said last week, however, that the money
raised might not be enough if EU regulators undertaking an
industry review force it to set aside more cash to cover for bad
The Tuscan bank is offering 214 new shares for every five
held, at a price of 1 euro each.
That implies a 35.5 percent discount to the theoretical
ex-rights share price (TERP), which takes account of the
dilutive effect of the new shares, and a 96 percent discount to
the previous closing market price of around 24 euros.
In contrast, Deutsche Bank offered a discount of around 21
percent to the TERP on the first 6.75-billion-euro part of its
Traders said the discount at Monte dei Paschi was meant to
protect the issue's underwriters - a consortium of 23 banks -
from the risk of a large amount of unsold shares, given the
sheer size of the issue.
On Monday, the rights of existing investors to take part in
the share issue fell as much as 10 percent and were
last trading down 5 percent at 21.9 euros, reflecting some
shareholders' decision not to take part in the offering.
Monte dei Paschi shares failed to trade throughout the
session until the close on the Milan bourse because of too big a
spread between demand and offer. They were 20 percent higher at
1.8480 euros at the close.
The transaction will cost the bank 260 million euros.
(Additional reporting by Lisa Jucca and Valentina Za; Editing
by Jason Neely, Mark Potter and Pravin Char)