UPDATE 5-BBVA enters Turkey with $5.8 bln Garanti deal

* BBVA buys 24.9 pct of bank, to share control with Dogus

* To carry out 5.1 billion euro ($7.1 billion) rights issue

* Garanti Q3 net profit 522 mln lira vs 580 mln lira in poll

* BBVA shares fall 1.91 percent, Garanti up 1.57 percent

(Adds analyst comment, updates shares)

By Sonya Dowsett

MADRID, Nov 2 (Reuters) - Spanish bank BBVA BBVA.MC has bought joint control of Turkey's Garanti Bank GARAN.IS in a $5.8 billion deal, cutting exposure to a stagnant home market to enter one of the world's fastest growing economies.

BBVA will buy a 24.9 percent stake in Garanti with funding from a 5.1 billion euro rights issue, giving it joint control with Garanti parent Dogus Group. Until now, the bulk of BBVA’s overseas business was in Latin America and the United States. “BBVA wants to be in markets with the best potential for growth and Turkey, through a leader bank like Garanti, is undoubtedly one of those,” BBVA Chairman Francisco Gonzalez said in a statement.

Shares in BBVA fell as much as 3.8 percent to hit a four-month low of 8.76 euros before retracing lost ground to trade 1 percent lower after investors baulked at the price paid and the dilutive effect of the rights issue.

BBVA paid 8 Turkish lira per share for the stake, a 10 percent discount to last week’s average price, but shares in Garanti, viewed as one of Turkey’s best-run banks, have risen by over a third since the start of the year.

BBVA bought shares from General Electric GE.N and Dogus.

“It is an expensive deal and it carries a rights issue which will be dilutive, so I think that’s what the market is reacting to,” said Arturo Frias, analyst at Evolution Securities. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a Breakingviews column see [ID:nLDE6A10NW]

Graphic on Turkish bank performance vs. European peers:

Graphic on the most targeted emerging market countries

for M&A since since 2010:

For an Insider show on the deal ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Goldman Sachs estimated the rights issue would dilute earnings per share by 4-5 percent for 2011-2012. One banker said the high price reflected the path to control for BBVA.

As part of the deal, BBVA acquires an option to increase its stake by a further 1 percent and get a majority of board seats in five years time. Under terms of the deal, Dogus and BBVA will have equal stakes amounting to 49.8 percent combined.

Garanti shares were down 1.1 percent at 8.8 Turkish lira, off a high of 9.42, after the bank published worse-than-expected third-quarter results, which reflected cost pressure from competition and lower yielding government debt. [ID:nWEA6128]

BBVA's move comes three to four years after other major international banks such as Citigroup C.N, ING ING.AS and BNP Paribas bought or took stakes in Turkish lenders.

With Turkish interest rates at historic lows, mortgage lending and personal loans to a young, increasingly affluent population of 75 million are expanding rapidly. The government expects Turkey’s economy to grow 6.8 percent this year.

“We consider Turkey to be one of the most attractive long-term growth stories in global banking, albeit with near term margin pressure,” said Ronit Ghose, analyst at Citi.

BBVA said Spain’s weighting in the group’s business would be reduced to less than 10 percent over the next five years from around 30 percent currently.

BBVA said 3.1 billion euros of the 5.1 billion euro rights issue would be used for the acquisition. A further 1 billion was earmarked for the potential impact of the purchase under new banking rules. The rest would be used for non-acquistive growth. The one-for-five rights issue was priced at 6.75 euros per share, a 29 percent discount to Friday’s closing price.

Morgan Stanley MS.N and Goldman Sachs GS.N will act as joint global coordinators and bookrunners for the rights issue.

Core capital will stand at 8.8 percent following the rights issue and Turkish acquisition, the bank said, from 8.2 percent in September 2010. (Additional reporting by Alexandra Hudson and Ebru Tuncay in Istanbul, Victoria Howley in London, and Judy MacInnes and Jonathan Gleave in Madrid; Editing by David Cowell)