Ukrsotsbank clarifies share capital increase plans

Ukrsotsbank (USCB UK) plans to boost its share capital by 45% (not 95% as expected previously) via the issuance of new shares according to a draft decision to be approved at an AGM on April 20. Additional shares will be placed at UAH 0.22 per share (vs. par of UAH 0.1), implying the bank will raise USD 157 mln in new equity (19% of end-2011 equity). Current shareholders will have a pre-emptive right to subscribe for new shares on a pro rata basis. According to management, UniCredit Group will likely to convert its subordinated debt to Ukrsotsbank into equity. Also, the bank will buy back shares from current shareholders that vote against the capital increase at the AGM at UAH 0.22 per share (vs. the current price of UAH 0.214/share).

Olena Zuikova: The news is overall positive for Ukrsotsbank as its capital structure will improve, but there are negative implications for minority shareholders and for the liquidity of the stock. We think minorities are unlikely to subscribe to the share issue as the current market price is somewhat below the proposed price for the new shares and is likely to further decline after the ex-rights date. This implies free float will decrease considerably from the current 4.6%. We maintain our HOLD recommendation on the stock; the prospective buyback should prevent the share price from declining from the current level until the AGM (the record date for the share buyback).