IFR International - 28.07.2018

Top news

Carige given one more chance to boost capital

„ People & Markets Italian bank has been in breach of requirements since January

BY GARETH GORE

BANCA CARIGE has been granted

ONEûlNALûCHANCEûTOûMEETûITSû

capital obligations, with the

%UROPEANû#ENTRALû"ANKûGIVINGû

the Italian lender until the end

of November to come up with a

new plan of action after two

previous efforts ended in failure.

The bank has been under

pressure to boost its capital since

failing to meet a new target on

January 1. A plan drawn up in

April to sell assets including

properties, a stake in a motorway,

and shares in the Italian central

bank never came to fruition.

Carige drew up a second plan

last month, centred around the

issuance of Tier 2 bonds to boost

ITSûTOTALûCAPITALû"UTûTHEû%#"û

rejected the plan, and has since

written to the bank urging it to

look into other options –

including being sold or merged.

“The supervised entity shall

PRESENTûTOûTHEû%#"ûATûTHEûLATESTûBYû

30 November 2018 a plan ... to

restore and ensure in a

sustainable manner compliance

with capital requirements,” the

central bank wrote. “This plan

should assess all options including

a business combination.”

The latest ultimatum comes

just seven months after a €500m

rights issue – the bank’s third in

as many years – that was meant

to draw a line under its troubles.

"UTûLOSSESûSINCEûTHENûANDûAû

failure to meet business targets

have further set it back.

ITALIAN CLEAN-UP

Carige is the last of four banks

TARGETEDûBYûTHEû%#"ûINûAûCLEAN

UPû

of the Italian system. The others

nû"ANCAû-ONTEûDEIû0ASCHIûDIû

3IENAû"ANCAû0OPOLAREûDIû6ICENZAû

ANDû6ENETOû"ANCAûnûWEREûALLû

bailed out last year after failing

to raise capital privately.

It may struggle to avoid a

similar fate. Appetite for Italian

assets has worsened since the

FOURûBANKSûlRSTûSTARTEDûEFFORTSûTOû

raise capital in 2016, not least

because of the rise of a

combative right-left coalition

government in the country.

Indeed, Carige blamed market

conditions for the failure of its

lRSTûTWOûATTEMPTSûTOûRAISEû

capital, which it said had

“strongly negatively affected not

ONLYû"ANCAû#ARIGEûBUTûALSOû

SEVERALûOTHERûlNANCIALûANDû

corporate issuers”.

The bank roadshowed a Tier 2

bond earlier this year, but the

deal never came. Carige says that

it is still working towards such a

transaction, which would count

towards its capital, but analysts

are pessimistic about a deal

actually printing.

Equity capital may be equally

DIFlCULTû)TSûLASTûRIGHTSûISSUEû

completed in December, was

painful for those involved.

Underwriters insisted on unusual

back-out clauses to protect

themselves. Take-up among

shareholders was just 66%.

“Funding conditions are far

worse for the bank than back in

Bankers weigh multi-billion dollar

Aramco-Sabic debt financing

„ Loans Aramco’s Sabic acquisition takes heat off IPO plans

BY SANDRINE BRADLEY

"ANKERSûAREûDISCUSSINGûAû

POTENTIALûJUMBOûlNANCINGûOFûUPû

to US$70bn to back oil giant

SAUDI ARAMCO’s acquisition of a

majority stake in SAUDI ARABIA

BASIC INDUSTRIES CORP.

Aramco is aiming to buy a

controlling stake in

PETROCHEMICALûOUTlTû3ABICûANDû

could buy all of the 70% stake

OWNEDûBYûTHEû0UBLICû)NVESTMENTû

Fund, Saudi Arabia’s top

sovereign wealth fund.

Riyadh-listed Sabic, the

world’s fourth-biggest

petrochemicals company, has a

market capitalisation of

SR385.2bn (US$103bn) and a 70%

stake would cost roughly

US$70bn.

*0û-ORGANûANDû-ORGANû3TANLEYû

have been picked to advise on

the deal, Reuters reported.

"ANKERSûAREûHAVINGûINTERNALû

discussions about Aramco’s

potential need for external debt

lNANCINGûWHICHûCOULDûBEûLOANSû

or bonds. Aramco has not yet

sent a request for proposals to its

lenders, sources said.

“Nothing has happened yet

but all banks are looking at it,”

one banker said.

The possibility and size of a

potential debt deal depends

WHETHERûVENDORû0)&ûWILLûREQUIREû

certainty of funds for the

acquisition, which could mean

that Aramco has to raise cash

upfront, rather than paying over

a longer period.

“Aramco may need to raise

some upfront cash which might

be paid in a number of agreed

instalments and might include a

bridge loan,” the banker said.

Getting information on a

POTENTIALûDEALûCOULDûBEûDIFlCULTû

however, as negotiations will be

led from the top by Saudi

Arabia’s reforming crown

prince, Mohammed bin Salman.

“We would like to get out and

meet people to discuss this but I

don’t think anyone will be

knowledgeable enough. This is

being led from the top by the

crown prince, I don’t think

people at the Aramco level even

know what is going on,” he said.

Aramco declined to comment.

LENDERS KEEN

!ûLARGEûPOTENTIALûDEBTûlNANCINGû

could boost Middle Eastern

lending, which sank to only

US$4.4bn in the second quarter -

the lowest quarterly total since

the second quarter of 2004 - and

would attract appetite from local

and international banks.

In early 2016, the crown

prince said that he planned to

SELLûSHARESûINû!RAMCOûINûANû)0/û

planned for 2018, which was

aiming to raise more than

US$100bn for a new sovereign

wealth fund.

4HEû)0/ûHASûBEENûDELAYEDûUNTILû

at least 2019, which means that

Aramco’s relationship banks will

be expected to provide any

lNANCINGûFORûTHEû3ABICûPURCHASEû

at very low rates to land a role in

THEûPOTENTIALû)0/

“The US investment banks, all

three Japanese banks, all the

French banks, some of the

German banks and a lot of

Middle East banks, including the

Saudi banks, will be willing to

lend as much as possible,” a

second banker said.

"ANKSûTHATûAREûUNLIKELYûTOûBEû

INVOLVEDûINûTHEûPOTENTIALû)0/û

would be less keen to lend at low

rates, as banks’ return on capital

remains under pressure.

“Capital raises will be

exceptionally tough,

especially without a

new plan, and it leaves

the door open for a

merger”