MILAN, Dec 27 (Reuters) - Italy’s Banca Monte dei Paschi di Siena would have to offer the treasury a big discount if it decided to convert into shares the bonds it is issuing to the state under a bailout scheme, an official document showed.
A document posted on the bank’s website in preparation for an extraordinary shareholders’ meeting on Jan. 25-26 said that if it issued new shares to the treasury these would be priced at a 30 percent discount to the theoretical ex-rights price.
This was meant to “offer the state a reasonable prospect of adequate return” on its investment, the document said.
Under the terms of the bailout scheme, the bank will issue 3.9 billion euros ($5.2 billion) of bonds to the treasury.
Just under half of these - 1.9 billion euros - will replace existing loans the bank took out in 2009, with the rest covering a capital shortfall that led to Monte Paschi being one of just four European lenders to fall short of European Banking Authority (EBA) capital adequacy requirements.
After months of negotiations with the European Union, Italy changed the terms of the bailout, allowing Monte dei Paschi to take on more debt by issuing bonds.
The changes are intended to make it less likely the treasury will have to take a stake in the bank if it makes a loss, which it is expected to do this year and possibly also in 2013.
However, the terms of the bailout say the bank can convert the bonds into shares if it cannot pay them back, effectively opening the door to nationalisation.
Thursday’s document said that if new shares were offered to the treasury, the dilution for existing shareholders would be significant.
Monte dei Paschi said last week that because of this its board would seek shareholder approval in January for two possible capital increases of up to 4.5 billion euros and 2 billion euros respectively, in case it needs to issue shares to the treasury over the next five years.
The bank said the power for the board to increase the bank’s share capital was one of the conditions of the bailout scheme.
$1 = 0.7555 euros Reporting By Paola Arosio and Silvia Aloisi; Editing by Helen Massy-Beresford