Raiffeisen Sells $3.8 Billion Shares in Biggest Europe Bank Deal

Jan 22, 2014 11:36 am ET

Jan. 22 (Bloomberg) -- Raiffeisen Bank International AG, Austria’s third-biggest lender, sold 2.78 billion euros ($3.8 billion) of new shares to boost reserves and repay state aid as European banks gear up for asset and stress tests this year.

Raiffeisen, which is also the second-biggest lender in eastern Europe, sold 97.5 million new shares, equivalent to half its existing stock, at 28.50 euros each in this year’s first large bank equity-raising deal, the Vienna-based lender said in a statement. That’s the biggest share sale on the market of a euro-area bank since Deutsche Bank AG raised 2.9 billion euros in April, according to data compiled by Bloomberg.

“Overall, we see the transaction as an all-important milestone in Raiffeisen Bank International’s equity story,” Goldman Sachs Group Inc. analyst Pawel Dziedzic said in a note to clients. He rates Raiffeisen neutral.

Raiffeisen rose 85 cents, or 2.8 percent, to 30.75 euros a share in Vienna. The shares are the best performer in the 44- company Bloomberg Europe Banks and Financial Services Index this year, after declining 19 percent in 2013.

The market reaction vindicates new Chief Executive Officer Karl Sevelda’s decision to go ahead with a rights offering that a majority of analysts asked for three years ago. The deal brings the lender’s capital buffers in line with peers and regulators’ expectations as the European Central Bank prepares to scrutinize assets to identify reserve shortfalls.

‘Claw Back’

The bank sold the new shares to institutional investors today, it said. The next step in the sale, announced on Jan. 8, is a rights offering to existing shareholders, who can buy one new share for every two they own from Jan. 24 to Feb. 7. The shares needed to fulfill shareholders’ rights, as many as 21 percent of the total, will be “clawed back” from the investors who bought them in the pre-placement, Raiffeisen said.

Raiffeisen Zentralbank Oesterreich AG, which represents a group of cooperative banks and owns 79 percent of Raiffeisen Bank International, won’t exercise its rights and instead order 750 million euros of shares in the placement, Raiffeisen said yesterday. Based on today’s pricing, its stake will drop to 61 percent, according to calculations by Bloomberg News.

Raiffeisen’s share sale is Austria’s biggest since Erste Group Bank AG raised 2.9 billion euros in 2006 to fund its takeover of Banca Comerciala Romana SA. Raiffeisen, which went public in 2005 selling stock at 32.50 euros, last raised equity in 2007, when it sold 1.2 billion euros of new shares at 104 euros each.

‘Bear Case’

Raiffeisen’s core equity Tier 1 ratio, a measure of financial strength under new EU rules implementing the Basel III accord, will rise to about 9.7 percent thanks to the cash call. The bank plans to bring the ratio above 10 percent within 18 months, helped by retained earnings and asset reductions. The capital ratio stood at 6.5 percent at the end of September.

“Our bear case argument is addressed with Raiffeisen’s issuance,” said Eleni Papoula, an analyst at Berenberg Bank who lifted her recommendation on the stock to hold from sell today. “This should also mark the end of Raiffeisen’s 13-month underperformance relative to European banks.”

Raiffeisen will redeem 1.75 billion euros of state aid and 750 million euros of capital linked to the aid this year with the funds raised, it said. The capital is phased out under new European Union rules from 2017.

Speed Restructuring

Erste, Raiffeisen’s bigger Austrian competitor, sold new shares last year to repay state aid, bringing its capital ratio to 10.3 percent. Austrian regulators had demanded it get to 10 percent as a condition to approving the repayment.

“The increase in free float and stock liquidity is positive for institutional investors,” Berenberg’s Papoula said. “We also believe this could trigger or speed up the restructuring process of Raiffeisen.”

Raiffeisen is also looking at scaling down or selling subsidiaries in countries where it is losing money or which it now considers too risky. That group includes Ukraine, Hungary and Slovenia, CEO Sevelda has said.

While Raiffeisen halted the sale of its Hungarian business for the time being, it has received indications of interest for a sale of its Ukrainian business, Raiffeisen Bank Aval, and allowed “certain potential bidders” access to some data for a due diligence, the lender said last week.

Raiffeisen Bank Aval is Ukraine’s fourth-biggest bank, with 4.5 billion euros of assets. While a third of its loans are non- performing, the lender more than doubled profit after tax to 72 million euros in the first nine months of 2013.

Raiffeisen hired Deutsche Bank AG, UBS AG and Raiffeisen Centrobank to manage the share sale as joint global coordinators. Barclays Plc, BNP Paribas SA, Commerzbank AG, ING Groep NV, and Intesa Sanpaolo SpA are acting as co-lead managers for the transaction.

--With assistance from Ruth David in London. Editors: Jonathan Tirone, Frank Connelly