BNP Paribas , France's biggest bank by market capitalization, on Tuesday joined the rush to pay back governments for their financial support during the credit crisis.
The bank launched a capital increase for 4.3 billion euros ($6.30 billion) as part of its move to reimburse the French state early on its 5.1 billion euros capital advance.
BNP Paribas said the capital increase would be an underwritten rights issue with preferential subscription rights for ordinary shareholders. It added that the deal would boost its earnings per share (EPS) by around 8.4 percent.
The capital hike was set at 1 new ordinary share for 10 existing shares at a subscription price of 40 euros per share.
The subscription price represents a discount of around 29 percent to BNP's closing share price of 56.57 euros on Monday.
I could subscribe to the offer. It's an attractive price, said Agilis Gestion fund manager Arnaud Scarpaci. Scarpaci recently sold 2,500 BNP Paribas shares at around 55 euros.
BNP said it would, as of October, reimburse the 5.1 billion euros in non-voting shares subscribed to by the French state on March 31 and will make a payment of 226 million euros, calculated over the seven-month period.
The move, making the most of low rates and recovering share valuations -- with the CAC-40 blue-chip index breaking the 3,800 points index for the first time since October 2008 -- will also free BNP Paribas from the state's conditions for its financial help, including limits on bonus payments.
At 0726 GMT (3:26 a.m. EDT), BNP shares lead the gainers on the CAC 40 rising 3.2 percent while the DJ Stoxx European bank index was up 0.6 percent.
SEEKING FREEDOM FROM GOVERNMENTS
Among European banks, Italy's Unicredit and Intesa Sanpaolo are set to raise funds in an effort to keep politicians at a distance and take advantage of healthy capital markets.
Britain's Lloyds Banking Group and Royal Bank of Scotland are also considering raising billions from equity raising or asset sales to limit the state's stake.
Swiss bank UBS chief executive Oswald Gruebel told the Financial Times the bank also wanted to cut ties with the Swiss government by buying its way out of a bad bank deal and aimed to return to health within a year.
BNP Paribas has increased its loan advances in France by 5.5 billion euros over the last 12 months, BNP Paribas Chief Executive Baudouin Prot said in a statement.
BNP said the capital increase, combined with new shareholders' equity resulting from the scrip dividend (0.75 billion euros) and a capital increase reserved for employees (0.26 billion euros), will finance the reimbursement of all the non-voting shares issued on March 31, 2009 to the Societe de Prise de Participation de l'Etat (SPPE) pursuant to the French State's plan to support the economy.
Following the transaction, BNP Paribas will have 59.4 billion euros Tier one shareholders' equity and its Tier one ratio will be over 9 percent on a pro forma basis as at June 30.
BNP Paribas said its earnings capacity and the organic generation of equity ensures that the group maintains financial flexibility to continue to grow in an environment where capital requirements are more stringent.
The bank added that its third-quarter results, due to be published in early November, were unlikely to differ from those of the second quarter. For the second quarter, BNP posted better-than-expected profits.
(Aditional reporting by Sudip Kar-Gupta; Editing by Mike Nesbit)