* Raiffeisen places 97.5 mln shares at 28.50 euros each
* Priced at 4.7 pct discount to Tuesday's close
* Cash to strengthen balance sheet, repay state aid
* Deal kicks off year of capital raising for European banks
(Recasts with placement details)
By Michael Shields and Arno Schuetze
VIENNA/FRANKFURT, Jan 22 Raiffeisen Bank
International kicked off a year of fundraising by
European banks on Wednesday with a share sale that raised 2.78
billion euros ($3.8 billion) to strengthen its balance sheet and
repay state aid.
Other banks are also expected to raise cash to ensure they
have enough capital to comfortably pass regulators' health
checks this year.
The European Central Bank is scrutinising balance sheets of
major euro zone banks before taking over direct supervision of
them in November, a move aimed at restoring investors'
confidence in a region battling to recover from a debt crisis.
Stress tests may reveal capital shortages where banks have
not set aside enough to cope with bad loans. Accountant PwC
said in November that European banks may need to fill a
280 billion euro capital hole this year.
Raiffeisen placed nearly 97.5 million new shares - half its
share capital - with institutional investors at 28.50 euros
each, the same price that existing shareholders will pay in a
rights offer of one new share for every two they now hold.
That was a discount of 4.7 percent from Tuesday's close.
Just over a fifth of the new shares can be clawed back for
the rights issue that runs until Feb. 7, RBI said.
It is the biggest capital increase on the Vienna Stock
Exchange since Immoeast, now part of property group Immofinanz
, raised 2.84 billion euros in 2007.
A source familiar with Raiffeisen's fundraising had said
central and eastern Europe's second-biggest lender had guided
investors towards an issue price between 28 and 29.50 euros.
The stock was up 3.0 percent to 30.8 euros by 1506 GMT.
"This should also mark the end of Raiffeisen's 13-month
underperformance relative to European banks," Berenberg analyst
Eleni Papoula said in a note to clients, raising her
recommendation to "hold" from "sell" and her price target to 29
euros from 12.
"We can be more positive if the increased free float and its
influence... trigger a focus on shareholder value, while new
investors may be able to get a better valuation during the
Unlisted parent Raiffeisen Zentralbank (RZB) had agreed to
waive its subscription rights and instead bought 750 million
euros of shares in Wednesday's sale.
RZB, itself owned by regional banks, had said it wanted to
keep a majority holding in Raiffeisen. Its stake will shrink to
around 60 percent from 78.5 percent, depending on the outcome of
the rights issue.
The added financial muscle may enable RBI to concentrate on
a strategic review to focus on six markets - Russia, Poland, the
Czech Republic, Slovakia, Romania and Austria - while saving 450
million euros in costs over the next three years.
Its operations in Ukraine, Hungary and Slovenia are under
"special review", although it decided this month not to sell its
business in Hungary for the moment.
Erste Group analyst Guenter Hohberger called the capital
move liberating for Raiffeisen.
"The pressure was on as they were undercapitalised and this
weighed on the valuation. This stumbling block will now
dissipate," he said.
Raiffeisen stock had been trading at around 8 times 12-month
forward earnings, but since a Jan. 8 announcement that it was
planning the capital increase has moved up to around 10 times.
That is still a discount to rival Erste Group -
which repaid aid last year via a 660 million euro rights issue -
on about 13 times, according to Thomson Reuters StarMine, which
weights analyst estimates by their previous forecasting
The deal is set to boost Raiffeisen's core equity Tier 1
capital ratio under Basel III rules to about 9.7 percent of
risk-weighted assets, which is more than regulators require,
from 6.5 percent at the end of September 2013.
Raiffeisen will use proceeds to redeem 2.5 billion euros in
non-voting capital it raised in 2009 to help ride out the
financial crisis but which will not count as Core Tier 1 capital
after 2017. It will first repay the 1.75 billion euro tranche it
got from the state, and the rest by year's end.
The bank has dropped plans announced earlier to issue up to
500 million euros in additional Tier 1 capial instruments, a
Deutsche Bank, Raiffeisen Centrobank
and UBS were joint coordinators and bookrunners.
Barclays, BNP Paribas, Commerzbank,
ING and Intesa were co-leads.
The financial sector was the biggest for equity capital
markets issuance last year in Europe, the Middle East and
Africa, with $80.5 billion raised, Thomson Reuters data show.
The sale of bank shares - either capital hikes or government
sell-downs - made up four of the five biggest deals in the
region, with Barclays' $9.9 billion deal topping the list.
($1 = 0.7383 euros)
(Additional reporting by Angelika Gruber; Editing by Jane
Merriman and Erica Billingham)