Bankia reduces IPO price to ensure offer is covered

In the wake of the turbulence in the financial markets last week, Spanish lender Bankia on Monday slashed the price of its initial public offering (IPO) in order to attract demand.

Bankia, which resulted from the merger of seven savings banks, including Caja Madrid, set the IPO price at 3.75 euros, down 15 percent from the lower end of the range it set in its prospectus for the offer. The maximum price set was 5.05 euros per share.

Bankia said last week it had covered earlier 83.1 percent of the retail tranche of the IPO at 4.41 euros per share, while saying the institutional leg had been largely covered. The retail leg accounts for 60 percent of the IPO and institutions the remaining 40 percent.

"With the new price they should lure enough money from institutional investors, as it is reducing the risk of a weak share performance in the short term," Bloomberg quoted Marc Garrigasait of Barcelona-based asset manager Gesiuris as saying. "It does lift the chance that the bank may need to raise more capital in the future."

Bankia was initially looking to raise up to 4.1 billion euros from the IPO, but at the reduced price the amount it will take in will be around 3.1 billion euros from the 825 million shares, or 47.6 percent of its capital, it is looking to sell. That would price the bank at 6.5 billion euros, a 60-percent discount to its book value.

There is also a greenshoe option available to the banks helping to place the IPO under which they can sell an additional 82.4 million shares. If exercised, the amount raised by Bankia would increase to 3.4 billion euros.

Bankia's parent company Banco Financiero y de Ahorros (BFA) passed the stress tests carried out on European banks by the European Banking Authority, with a core capital ratio under an adverse scenario of 5.4 percent, above the minimum of 5 percent.

Bankia is due to start trading on the Spanish stock exchanges on Wednesday. Market conditions remained challenging on Monday, with the yield on the benchmark 10-year government bond trading at well over 6 percent, and with the spread on the German equivalent at 350 basis points, just below euro-era highs reached last week.