Austria’s Erste sells €661m of new shares to help repay state aid

Erste Group Bank, Austria's biggest lender, sold €661 million of new shares to help repay state aid in a transaction that reduces the stakes of its main shareholders.

The money will be used to pay back the €1.76 billion in non-voting participation capital Erste issued to boost its financial strength during the financial crisis in 2009.

The bank last week revealed plans to raise the capital in the third quarter. It was able to place the shares quickly due to investor demand.

About one-third of the rescue capital is held by investors and the remaining two-thirds by the Austrian state.

Repaying the capital will help to ease looming regulatory pressures on Erste. Its participation capital will not qualify as top-tier capital under the tougher new Basel III rules. Also, the interest rate due on repayments is set to rise to 8.5 per cent from 8 per cent next year, the bank said.

Erste agreed to sell 35.2 million shares, or 8.9 per cent of outstanding stock, at €18.75 each to institutional investors yesterday, the lender said in a statement. Shareholders can subscribe to buying four new shares for every 45 they own over the next two weeks.

A group of owners holding a combined 37 per cent stake waived the right to new shares, allowing their holdings to be diluted and making the stock available to outside investors, said Erste. "The slightly complicated two-step structure . . . covers the placement of the shares not taken" by the key shareholders and "reduces the execution risk of the subsequent subscription offer," Ronny Rehn, an analyst at Keefe, Bruyette and Woods in London, said in a report to clients. "We think it's worth participating at the €19 per share level."

Erste is struggling to balance declining lending revenue with cost cuts and reduce bad debt charges as central and eastern European economies remain mired in slow growth. – Copyright The Financial Times Limited 2013/Bloomberg