Italy's MPS cash call take-up rises further after rights' auction

By Valentina Za and Andrea Mandala

MILAN (Reuters) - When Monte dei Paschi di Siena closes its 2.5 billion euro ($2.5 billion) capital raise on Thursday, the banks that dragged their feet about backing it will be left holding shares worth only a few dozen million euros.

Concerns about tapping markets against the backdrop of the Ukraine war, record inflation and an impending economic recession had risked derailing MPS' seventh cash call in 14 years.

MPS had to delay approval of the share sale's terms until it managed to secure support from a group of eight banks and London-based group Algebris for the 900 million euro portion of the capital raise that would not be covered by the Italian state.

To offset risks, underwriters agreed much higher than normal fees worth 125 million euros, a quarter of which will go to a group of sub-underwriters that will take up more than half of the private portion of the capital increase.

Aside from the state, MPS' existing shareholders mostly snubbed their pre-emptive rights to buy the new shares, leaving sub-underwriters such as French insurer AXA or holders of MPS' junior debt to provide the cash the bank needed.

Taking into account the sub-underwriting commitments, if all the rights that were bought on Monday and Tuesday were exercised, underwriters would be left with as little as 38 million euros in new MPS shares, a person close to the transaction said.

However, with the stock trading below the cash call's subscription price of 2 euros a share, the best case scenario is unlikely.

Still, sources have said underwriters will be saddled with less than 100 million euros in unsold stock.

Based on its 64% stake in the bank it rescued in 2017, Italy is paying 1.6 billion euros into the capital raise, but European Union rules on state aid require a private contribution as well.

When the subscription period closed on Monday, MPS had covered 94% of the capital increase when including investor commitments, leaving out only some 150 million euros, the person said.

Investors who bought the leftover rights have until 1300 GMT on Thursday to exercise them, and the actual amount raised through the sale will be known only then. ($1 = 1.0115 euros)

($1 = 1.0106 euros)

(Reporting by Andrea Mandala; editing by Valentina Za, Keith Weir and Paul Simao)