* New share offer starts runs from Feb. 19 to March 8
* Cash call equals six times the bank’s market capitalisation
* Italy holds parliamentary elections on March 4 (Adds signing of underwriting contract)
By Valentina Za and Andrea Mandala
MILAN, Feb 15 (Reuters) - Mid-sized lender Creval will offer new shares at 0.10 euros each from Monday in a 700 million euro ($869 million) offer that will test investor demand for Italian banks ahead of a general election.
Italy’s banking sector is restructuring after the country’s deep economic slump. Under regulatory pressure to shed 324 billion euros in soured loans still sitting on their books three years after the recession ended, Italian banks have been raising capital to be able to write them down and sell them off.
Creval, Italy’s 10th largest bank, will seek to raise six times its market value in fresh capital while Italy heads to a national election on March 4 from which a clear winner may fail to emerge, keeping markets on edge.
Ahead of the vote, a group of hedge funds has stepped up bets against a number of Italian banks, taking a contrary stance on a sector that has gained 13 percent so far in 2018 and 37 percent in the past year.
Creval said late on Wednesday it would offer shareholders 631 new shares for each one already owned, issuing in total up to 7 billion new shares.
The price of 0.1 euros represents a 16 percent discount to the stock’s theoretical price when excluding subscription rights. Shareholders have until March 8 to exercise the rights and until March 2 to trade them.
Creval’s shares fell 11 percent to 10.58 euros by 0955 GMT, bucking a 1.5 rise in Italy’s banking sector.
The stock is down 75 percent since the bank announced the bigger than expected cash call in early November, the first of a string of Italian lenders that have since stepped up bad loan reduction goals.
Roberto Lottici, a fund manager at Banca Ifigest, said the price of new shares, equivalent to 0.4 times the value of Creval’s assets, made the offer “very interesting.”
He said Italy’s economic recovery, the prospect of higher interest rates, Italian banks’ growing ability to deal with bad debts once recapitalised and possible further mergers ahead made them an appealing investment over the medium term.
“I’m talking at least two years’ time,” Lottici said.
Italy’s fragmented banking sector, with a surfeit of branches, is seen as ripe for consolidation as banks need to cut costs to lift low profitability.
Creval, which lost 332 million euros in 2017 due to loan writedowns, has said a restructuring plan dubbed ‘Renaissance’, will prepare it for a merger which it has said is “inevitable.”
The clean-up will lower bad loans below 10 percent of total lending by 2020 from 21.7 percent in December.
“We’re confident the market will react well,” said Andrea Vismara, CEO of Equita SIM, one of the banks backing the issue.
A group of 11 banks, led by Mediobanca and including Banco Santander, Barclays, Citi and Credit Suisse, has signed an accord to take on unsold shares in the offer, Creval said on Thursday.
The offer’s five global coordinators have pledged to underwrite up to 85 million euros each, one source close to the matter said, confirming a press report. Banks in the consortium stand to earn 33 million euros in fees, the source added.
There were initially 12 banks but several sources have said Jefferies had pulled out before the final signing.
Creval’s cash call follows that of troubled rival Carige , which in December managed to pull off a 540 million euro fundraising despite a 66-percent take up by shareholders. ($1 = 0.8089 euros) (Additional reporting by Paola Arosio and Giancarlo Navach; Editing by Jane Merriman/Keith Weir)