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Unicredit shares priced at 38% discount in €13 bn capital increase starting Monday

by Marco Ferrando

UniCredit has set the price of its €13 billion capital increase, due to run from Monday February 6 until Friday February 24: the new shares will be offered at €8.08 with a discount of 38% on theoretical ex-rights price (TERP).

The price falls within markets estimates of a possible range between 30% and 40% on TERP. The decision announced yesterday by the board places the offer in the high end of the range, as an incentive to old and especially new shareholders given the size of the offering.

The discount offered by CEO Jean-Pierre Mustier is however below the €7.5 billion capital increase launched by UniCredit five years ago, while it is above the recent share offerings of other Italian banks: the extra €1 billion of capital raised by Banco Popolare in June, before the merger with BPM, offered a discount of 29.3%, while Carige’s €850 million rights issue in 2015 came with a 35% discount. MPS instead offered 38.9% to raise €3 billion in the latest cap hike in spring 2015.

As reported yesterday by Il Sole 24 Ore, the bank also signed an underwriting contract with a large group of banks. UniCredit’s CIB, Morgan Stanley and UBS will serve as structuring advisors; Bofa Merrill Lynch, JPMorgan and Mediobanca will be joint global coordinators and joint bookrunners. Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs International and HSBC are co-global coordinators and joint bookrunners. Banca IMI (gruppo Intesa Sanpaolo), Banco Santander, Barclays, BBVA, BNP Paribas, Commerzbank, Crédit Agricole Natixis and Société Générale are joint bookrunners. The contract will have “conditions in line with market practice.” The size of fees will be indicated in the prospectus, but are expected to be of around €300-400 million.

Targets and NPLs
“The 2019 financial targets remain unchanged: in particular, the CET1 ratio (fully loaded) target in 2019 is confirmed to be above 12.5%, in line with the guidance given at the Capital Markets Day” in mid-December, UniCredit said in a statement.

The message comes after the board on Monday recorded an additional €1 billion of write-downs in the fourth quarter (expected to record a loss of €11.8 billion), which were however expected over the period of the 2016-2019 strategic plan, now fully confirmed. Especially now that there is a guarantee and therefore the certainty that the bank will raise €13 billion.
As part of the plan, the board also approved the implementation of an important project aimed to reduce the bank's non-performing loans.

The project FINO is now moving into the execution phase aiming to complete in 2017, the bank said. The project consists of the sale of €17.7 billion of NPLs in two phases, through a securitization. In detail, UniCredit will sell a majority tranche to Pimco and Fortress at the latest in the second half of 2017. The full disposal will take place by 2019.

“The actions to improve the group's asset quality as an integral part of the 2019 plan have been shared with the ECB in the context of the ongoing dialogue with the supervisory authority and have been positively received,” UniCredit said.