Spanish bank Santander to beef up capital with "CoCo" bonds

(Updates issue size, pricing)

MADRID/LONDON, May 8 (Reuters) - Spain's largest bank Santander on Thursday sold $1.5 billion worth of contingent convertible "CoCo" bonds, in a move that will help the bank beef up its capital base ahead of European stress tests this year.

The lender had already sold 1.5 billion euros ($2.1 billion) of so-called Additional Tier 1 bonds in March and had said then it planned to sell 6 billion euros more over the coming years. Such instruments convert into shares or are wiped out if a bank's equity capital falls below a set level.

Santander said last month it wanted to have a core capital ratio of 9 percent by year end under Basel III "fully-loaded" criteria, which takes into account changes that need to be made by 2019 and is a measure closely monitored by investors.

It is already above minimum requirements - its core capital ratio was 10.6 percent in March under the Basel III rules currently in place - but banks across Europe are racing to strengthen their solvency ratios as much as possible ahead of region-wide health checks.

These are taking place before the European Central Bank takes over as the euro zone's banking supervisor in November.

"This operation should have a positive impact of about 33 basis points in the bank's Tier 1 capital," BPI analyst Carlos Peixoto said of Santander's bond.

Santander's Spanish rival BBVA (Amsterdam: BBV.AS - news) said it had a 'fully-loaded' core capital ratio of 9.9 percent at the end of March.

The bond, due in 2019, carries a 6.375 percent coupon, after pricing at the tight end of guidance. Demand was strong, totalling $10 billion, according to Thomson Reuters (Frankfurt: TOC.F - news) market news and analysis service IFR.

Dealers for the accelerated book building process are Credit Agricole, Deutsche Bank (Xetra: DBK.DE - news) , Goldman Sachs (NYSE: GS-PB - news) , Morgan Stanley (Berlin: DWD.BE - news) and Santander.

Investors who buy Santander's issue could see their bonds converted into equity if the bank's Tier 1 ratio falls below 5.125 percent.

($1=0.7183 euros) (Reporting by Julien Toyer in Madrid and Aimee Donnellan at IFR in London; Editing by Sarah White, Greg Mahlich and Pravin Char)