MADRID Spanish lender Banco Sabadell (SABE.MC) said on Monday it would carry out a capital hike of between 1.3 billion euros ($1.72 billion) and 1.4 billion euros to strengthen its balance sheet and meet increasingly rigorous regulatory demands.
The bank said it would carry out two consecutive capital increases. The first would attract new investors through an accelerated bookbuild worth around 650 million euros, equivalent to 13.36 percent of Sabadell's capital.
Investment funds Colombia's Itos Holding and U.S.-based Fintech Investments had committed to subscribe to the first increase, Sabadell said, giving the bank the opportunity to diversify outside recession-hit Spain after a number of domestic acquisitions.
Sabadell will then offer current shareholders additional stock in the bank.
Colombian financier Jaime Gilinski will become the biggest shareholder in Sabadell through Itos Holding following the capital increase, a source close to the deal said.
According to a Reuters calculation based on the bank's closing share price of 1.80 euros ($2.39), Gilinski will end up with around 5 percent of the company.
Spanish lenders were laid low by the country's property bust and took billions of euros of provisions last year to cover losses on bad real estate deals to clean up their books.
Banks now face stricter regulation and higher capital requirements since Spain's financial sector was bailed out by international lenders last year.
"What Sabadell wants to achieve with this operation is to bolster its balance sheet to take advantage of the business opportunities that present themselves as Spain's economy improves," the lender said in a statement to the stock market regulator.
Sabadell agreed in April to take over British bank Lloyds' (LLOY.L) retail and private banking businesses in Spain and took full control of insurer Mediterraneo Vida in May.
Consolidation is taking place across the sector as banks seek to shore up funds and weaker banks are snapped up by stronger rivals.
Sabadell also released a new report by consultancy Oliver Wyman on the bank's resistance to macroeconomic headwinds, which estimated losses on its loan portfolio of between 11.6 billion euros and 14.3 billion euros, depending on macroeconomic factors.
The report, dated September 6 and for the period June 2013 to December 2016, also projected that Sabadell would make losses of between 7.4 billion euros and 8.7 billion euros on its asset portfolio.
Sabadell would have a capital buffer of between 5.8 billion euros and 2.4 billion euros.
Sabadell said the capital increase would make it one of Europe's best capitalized banks, with a capital ratio of 11 percent.
Sabadell said Deutsche Bank (DBKGn.DE) and JP Morgan Securities (JPM.N) would guarantee the capital increase.
The new shares in Sabadell will be listed on October 8. ($1 = 0.7546 euros)
(Reporting by Clare Kane, Jesus Aguado and Julien Toyer; Editing by David Cowell)