January 8, 2014 / 6:40 PM / 4 years ago

UPDATE 1-Raiffeisen Bank Int'l eyes 2-2.25 bln euro capital hike

* Eyes 2.0-2.25 bln euro equity capital hike within six months

* Could use money to bolster balance sheet, repay state aid

* Confirms has dropped plans for now to sell Hungarian unit (Adds quotes and background)

By Michael Shields

VIENNA, Jan 8 (Reuters) - Raiffeisen Bank International may increase its equity capital by up to 2.25 billion euros ($3.06 billion) in the next six months, it said on Wednesday, mirroring Austrian rival Erste Group’s move to shore up capital and repay state aid.

Central and eastern Europe’s second-biggest lender has long said it could sell more shares to bolster its relatively weak balance sheet and a statement after the market close was the most detailed yet on what the Vienna-based bank has in mind.

Strengthening its equity would help RBI implement new Basel III rules “and is expected to include a capital increase of 2.0 billion to 2.25 billion euros”, it said, or around 40 percent of its current market worth of nearly 5.4 billion.

The timing and size of any transaction was subject to board approval and market conditions, it added.

A potential transaction would significantly increase RBI’s free float, it said, a signal that unlisted parent Raiffeisen Zentralbank - itself owned by regional banks - was ready to see its 78.5 percent stake diluted. Institutional and private investors own the rest.

RBI also plans to issue subordinated capital instruments over the next 12 months, it added.

It was looking at redeeming 2.5 billion euros in non-voting participation capital “in full or in part in the near future”, it said, referring to money it raised from the state and private investors to help weather the financial crisis. Austria provided 1.75 billion of the total.

The capital counts as core Tier 1 capital under international and Austrian rules only until the end of 2017. At the end of September 2013, the bank’s core Tier 1 ratio was 10.1 percent.

Expectations that Raiffeisen could take such a step rose after Erste last year raised around 660 million euros via a rights issue to help repay state aid.

That helps explain why RBI stock trades at around 8 times 12-month forward earnings, a discount to Erste on around 12 times, according to StarMine, which weights analyst estimates by their previous forecasting accuracy.

RBI also said it had decided for now not to sell its Hungarian unit “under the current conditions”. Reuters had earlier reported it had halted the sale. ($1 = 0.7353 euros) (Reporting by Michael Shields; Editing by Pravin Char and David Evans)

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