MILAN: Italian mid-sized bank Credito Valtellinese launched on Monday a 700 million euro ($868 million) share issue, aiming to raise eight times its market value in capital to restructure.
Under pressure, like other Italian banks, to clean up its balance sheet after a deep economic slump, Creval will use the money to shed soured debts that accounted for more than one-fifth of total loans at the end of last year.
Creval said its 2018-2020 restructuring plan, dubbed 'Renaissance', will address concerns by Italy's central bank that the lender may struggle to rebuild adequate levels of profitability given its high bad debts and operating costs.
Creval said the regulator would closely monitor the plan's progress, with a first check-up scheduled immediately after the cash call.
The offer runs until March 8, overlapping with an Italian general election on March 4, which may fail to yield a clear winner, keeping markets on edge.
Creval is offering up to 7 billion new shares at 0.1 euros each, a price equivalent to 0.42 times the value of its assets.
Some investors said such a discount was attractive given Italy's economic recovery, the prospects of rising interest rates and expected consolidation in the country's fragmented banking sector.
Creval has said the clean-up will prepare it for a merger, which is "inevitable."
However, rival Carige in December struggled to pull off a 540 million euro share issue. Shareholders took up only 66 percent of the offer and the bank filled the gap thanks to investors who took up unsold shares as part of deals to buy other assets.
Similarly, Creval said on Saturday it had accords in place with London-based investment fund Algebris, bad loan specialist Credito Fondiario and Austrian auction house Dorotheum which would take on unsold shares for up to 55 million euros.
By 0929 GMT shares in Creval were 6.4 percent lower, having lost around 80 percent of their value since the bank announced the bigger-than-expected cash call in early November.
The bank said in the offer prospectus that it had suffered liquidity outflows in November after unveiling the new plan and suffering credit rating downgrades.
Shares dropped 30 percent alone since Creval priced new shares at 0.1 euros each last Wednesday and said it would offer shareholders 631 new shares for each one already owned.
Shareholders in the bank, roughly half of which are small savers, stand to lose 99 percent of their investment if they don't buy into the cash call. However, rights to buy into the share issue dropped 61 percent in a sign some shareholders had no plan to invest further in the bank.
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