Unicredit rights offering lures underwriters despite risk

This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

--------------------------------------------------------------------------------

Italian bank Unicredit [UCG IM] is expected to open up the underwriting of its EUR 7.5bn rights issue to co-leads in weeks to come. A decision on sub-underwriting mandates is yet to be taken, sources told dealReporter

Strong interest has already been seen in sub-underwriting for the deal. It is said that a likely scenario is that another layer of banks will be invited to participate as co-leads. One source following the situation expected co-leads to be mandated by the end of December before a decision on sub-underwriters is made closer to launch. This source noted however that the deal already has a 15-strong syndicate of underwriting banks together with shareholder support.

Underwriter fees for the EUR 7.5bn cash call are said to be in the 2.5%-3% range in line with similar European transactions - almost twice the level of the Italian bank’s 2009 deals that carried fees of 1%-1.75%. The exact level of fees along with underwriting terms will be firmed up when the deal is priced. The source following the situation said that BofA Merrill Lynch, Mediobanca and UniCredit - joint global coordinators and bookrunners - on the transaction have already worked out termination clauses with the bank.

Joint bookrunners Banca IMI, BNP PARIBAS, Credit Suisse, Deutsche Bank, HSBC, JPMorgan, Société Générale and UBS, and co-bookrunners ING, RBC Capital Markets, RBS and Santander have agreed standby underwriting along with the three joint global coordinators.

Indications are that under the pre-underwriting terms agreed, material adverse change clauses are “standard”. An ECM lawyer noted that some deals could include a Force Majeure clause, while an ECM banker following the situation said he thought the recently completed Banca Popolare di Milano deal would be a good hint towards details of the Unicredit agreement.

The so-called material adverse change clause for the BPM deal included changes in the political situation, acts of war, terrorism or similar, or changes in the financial, economic, currency, fiscal, legislative situation or changes in the national and international markets or important distortions, in Italy and/or in the main international markets, in the banking system, of clearance or of settlement or in case of moratorium declaration in the system of banking payments.

Despite this, the BPM transaction closed this week 81.9% subscribed even though it was carried out between 31 October and 18 November during which time controversial former Prime Minister Silvio Berlusconi resigned. The FTSE’s MIB index of 40 Italian companies has also seen a period of strong volatility since August. During the last three months, the FTSE MIB has fluctuated amid volatile markets between a high of 17,000pts and a low of 13,481pts. Unicredit shares closed Wednesday down 3.569% at EUR 6.76 for a market cap of EUR 13.48bn amid further concerns on the sovereign debt crisis. The bank’s shares have traded with in a 52-week range of EUR 2.02 - 0.64.

The first source following the deal said that Goldman Sachs and Morgan Stanley claimed to have pulled out of the deal after they were refused a seat at the table with the global coordinators during the termination clause talks. However, he saw that as a smoke screen for a block by the two banks’ credit committees. A source at Goldman Sachs declined to comment on why the bank did not participate in the deal.

Meanwhile, Unicredit has been already been in contact with Italian market regulator Consob and the Bank of Italy on the multi-facetted transaction. A formal full filing of the prospectus will only be made after the EGM vote expected 15 December. The rights issue launch is expected mid-January to mid-February. Consob has up to 15 days to approve the prospectus, but considering the Christmas holiday, approval is expected at the beginning of January, according to a person familiar with the regulator. From the filing, Consob can ask for clarification or integration of documents.

As well as the rights issue, the prospectus will include details of Unicredit’s reverse stock split and the restructuring of the bank’s Convertible and Subordinated Hybrid Equity-linked Securities (CASHES). It was noted that Unicredit’s reverse stock split – where every ten existing ordinary and savings shares will be swapped for one new share - would need to happen a few days before the cash call launch. This would be in line with technical stock market requirements and enable the stock to trade at the new market price before the rights issue is launched.

It was said that although Unicredit is still waiting for the European Banking Authority to come back to Unicredit with its capital requirement with nine months figures, no additional changes are expected to the eligibility of its CASHES as Core Tier 1 capital. On announcement, the CASHES were to be restructured so that EUR 2.4bn would still be able to be computed as Core Tier 1, while the approximately EUR 0.6bn remaining would be computed as additional Tier 1 capital from a regulatory standpoint. People following the situation previously had speculated that if the compliance of the CASHES was adjusted this could lead to a larger cash call.

--------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@dealreporter.com or call Europe/EEMEA: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714