BES shares plunge on €1bn rights issue Shares in Banco Espírito Santo fell sharply on Thursday after Portugal's largest bank by market value unveiled a rights offering of up to €1.01bn to strengthen its capital ratios. The bank's core shareholders, representing 50.63 per cent of its share capital, have agreed to exercise their full subscription rights in the capital increase. A syndicate of investment banks is to underwrite the remainder of the offering. BES will offer the new shares at a subscription price of €0.395 each, a discount of almost 66 per cent on Wednesday's closing price of €1.167. The shares fell 26.74 per cent in early trading on Thursday to €0.855, later edging back €0.992, 15 per cent down on Wednesday's close. Lisbon-based analysts said similar offerings were expected from other Portuguese lenders in the near future, resulting in continuing pressure on their share prices. The BES rights issue, expected to take place in May, is the third by the group since 2006. The bank will have raised more than €3.5bn from shareholders from the three capital increases. BES is also to pay French bank Crédit Agricole, one of its main shareholders, €225m for the 50 per cent of insurer BES Vida that it does not already own for. The acquisition will be financed from the proceeds of the rights issue. BES said the capital increase would increase its core tier 1 ratio, a key indicator of financial strength, from 9.21 per cent to 10.75 per cent, based on risk-weighted assets at the end of 2011. This will meet both the European Banking Authority requirement that all European Union banks have a minimum core tier 1 level of 9 per cent by June this year and the Bank of Portugal's stipulation that Portuguese banks achieve 10 per cent by the end of 2012. BES said raising capital from its shareholders meant it would not need to draw on a €12bn state fund for recapitalising banks included in Portugal's €78bn bailout package agreed with the EU and the International Monetary Fund. Ricardo Espírito Santo, chief executive, said he hoped the rights issue would constitute a first step towards Portugal being able to resume financing its sovereign debt in the market in September 2013, as envisaged in the bailout agreement. After the capital increase and the sale of the BES Vida stake, Crédit Agricole will own 10.8 per cent of BES, up from 10.3 per cent. Bespar, a sub-holding company, 67.4 per cent owned by Espirito Santo Financial Group and 32.6 per cent by Crédit Agricole, will maintain its 35 per cent holding in the bank. Brazilian bank Bradesco will continue to hold 4.8 per cent. Espírito Santo Investment Bank, Nomura and UBS Investment Bank have been appointed joint global co-ordinators and joint bookrunners for the rights issue. Citigroup, Credit Suisse and JPMorgan will also act as joint bookrunners.