(Updates with result, adds background, analyst comment, updates shares)
By Sergio Goncalves and Axel Bugge
LISBON, June 11 (Reuters) - Banco Espirito Santo, Portugal’s largest bank by market value, has raised 1.045 billion euros ($1.42 billion) of new capital in a share sale that attracted strong investor demand.
The capital raising went smoothly even though the prospectus for sale revealed “material irregularities” involving the bank’s largest shareholder, Espirito Santo International (ESI), indirectly controlled by the Espirito Santo family.
The bank said on Wednesday it had raised all the capital it needed via the sale, which had been overshadowed by the problems at ESI.. Demand from investors surpassed the new shares on offer by 178 percent, a banker with knowledge of the deal said.
The money raised will be used to boost BES’s capital ahead of upcoming European Union-wide tests on whether banks have enough cash to withstand another crisis. BES had a core tier one capital ratio of 9.8 percent at the end of 2013, more than the 9 percent minimum demanded by regulators.
“It’s obviously gone very well,” Benjie Creelan-Sandford, an analyst at Macquarie Research who covers the stock, said.
“Certainly there was some uncertainty during the rights issue in light of the concerns that were alleged ... but the risk is less financial and more that there could be selling pressure (on the stock) if the family is forced to sell down their holding.”
Ricardo Espirito Santo, chief executive of BES, has said he knew nothing about the irregularities at the ESI holding company, which is registered in Luxembourg.
Shares in BES have risen 15 percent since May 28, the day that trading began in rights that would allow investors to take part in the discounted stock offering. This showed strong demand for the capital raising, analysts said.
The new shares were priced at 0.65 euros, or a 34 percent discount to the share price at the time of the announcement of the rights issue last month.
Shares in BES were 4.59 percent lower at 1.060 euros a share on at 1015 GMT on Wednesday.
“BES is ready to face the (ECB) stress tests with a strong capital ratio,” Andre Rodrigues, an analyst at Caixa Banco de Investimento, said.
Espirito Santo Financial Group - a holding company for the Espirito Santo banking family - has said that its stake in BES would drop to 25 percent from 27.5 percent through dilution in the capital increase.
The Espirito Santo family and French bank Credit Agricole have both been major BES shareholders. But the company through which these two controlled the bank was recently disbanded and Credit Agricole has said its stake in BES will drop to 15 percent from 20.1 percent through dilution.
ESFG and Credito Agricole said in May they would abandon their joint holding company - Bespar - in BES and keep direct stakes instead. ($1 = 0.7345 euros) (Reporting By Sergio Goncalves, writing by Axel Bugge, editing by Jane Merriman)