BBVA in €5bn cash-call as it buys Garanti

SPANISH bank BBVA yesterday launched a €5bn (£4.4bn) rights issue to help it fund its diversification away from a stagnant home market and bolster its capital levels in line with new Basel III requirements.

BBVA, the second-largest Spanish lender after Santander, said that it would buy nearly a quarter – 24.9 per cent – of Turkish bank Garanti for €4.2bn, and raise €5bn with a rights issue to part-finance the deal.

The deal, which gives BBVA joint control with Garanti parent Dogus Group, will officially make the Spanish lender an emerging markets bank with 51 per cent of its earnings now coming from that source. Until now, the bulk of BBVA’s overseas business was in Latin America and the United States.

The BBVA rights issue will be a one-for-five offer which will entitle the holders to buy shares at €6.75 each, 29 per cent below Friday’s closing price of €9.11.

BBVA paid eight Turkish lira per share for the stake, a 10 per cent discount to last week’s average price, but shares in Garanti, viewed as one of Turkey’s best-run banks, have risen by over a third since the start of the year.

As part of the deal, BBVA acquires an option to increase its stake by a further one per cent and get a majority of board seats in five years time.

Shares in BBVA fell as much as 3.8 per cent to hit a four-month low of €8.76 before retracing lost ground to close one per cent lower after investors baulked at the price paid and the dilutive effect of the rights issue. Goldman Sachs estimated the rights issue would dilute earnings per share by four to five per cent for 2011-2012. BBVA’s move comes three to four years after other major international banks such as Citigroup, ING and BNP Paribas bought or took stakes in Turkish lenders.

BBVA said €3.1bn of the €5.1bn rights issue would be used for the acquisition, with €1bn earmarked for the potential impact of the purchase. The rest would be used for non-acquisitive growth. Morgan Stanley and Goldman Sachs will act as joint global coordinators and bookrunners for the rights issue.