Investors in state-owned Monte dei Paschi urged to back cash call

MILAN (Reuters) -Leading governance advisers Institutional Shareholder Services (ISS) and Glass Lewis have recommended that investors in Monte dei Paschi di Siena (MPS) back a new share issue at a Sept. 15 shareholder meeting, documents showed on Wednesday.

MPS, which is 64% owned by the state after a 2017 bailout, is looking to raise up to 2.5 billion euros ($2.51 billion) by issuing new shares.

The sum corresponds to more than seven times the bank’s market value of only 330 million euros, complicating efforts because it caps the discount at which the lender can sell the new shares.

“Despite the significant dilution, the proposed operation is supported by a compelling rationale,” ISS wrote in a report for investors, a copy of which was seen by Reuters.

Current MPS shareholders, which include insurer Generali with a 2.9% stake, will have the value of their holdings wiped out in the new share issue, given its large relative size.

Italy, which five years ago pumped 5.4 billion euros of taxpayers’ money into MPS, will contribute another 1.6 billion euros towards the capital raising.

To avoid breaching European Union rules on state aid to lenders, MPS expects raise 900 million euros from private investors at a time when markets have been rocked by recession and inflation fears and with Italy facing snap elections on Sept. 25.

“The proposed capital increase is a core component of the company’s capital consolidation plan, which is key to the company’s long-term viability. As such, we believe approval of this authority to be in shareholders’ best interests,” Glass Lewis wrote.

MPS will use about 820 million euros in fresh funds to cover the costs of laying off staff through a generous early retirement scheme while bolstering its capital buffers and funding 350 million euros in IT investments.

Shares in MPS were down 4.8% at 0.314 euros by 1451 GMT. The stock has lost 64.5% this year, against a 26% drop in the sector index.

MPS’s subordinated debt trades at roughly half its nominal value, reflecting risks of a conversion into equity should MPS fail to raise cash from investors, analysts said.

($1 = 0.9975 euros)

(Reporting by Valentina ZaEditing by David Goodman)


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