The Swiss private bank has elaborated on its planned acquisition of BSI from Brazil's BTG Pactual and how it will pay for the entity in the event of poor markets.

EFG International has given more details on how it will pay for its recently-announced agreement to buy fellow Swiss-based BSI from BTG Pactual, explaining that deal certainty will be protected in the event of adverse market conditions.

The Zurich-listed private bank said it will hold an analyst and investor call on Tuesday March 22 to update the markets about its plans.
 
Depending on shareholders at EFG’s annual meeting on April 29, the bank said it intends to raise capital through a SFr500 million ($501.8 million) rights offering, as well as in the form of SFr250 million Additional Tier 1 instruments (AT1).

EFG said it has committed to invest at least SFr125 million in the intended rights offering and has also won additional commitments for a volume underwriting of SFr375 million from international investment banks. The remaining purchase price will be paid by EFG to BTG Pactual by way of issuance of 52.6 million new EFG shares to BTG Pactual (subject to dilution adjustment) and through available cash.

EFG said that “if market conditions prevented access to the capital markets, BTG Pactual would receive, in addition to the above mentioned 52.6 million EFG shares, further parts of its consideration in the form of additional new EFG shares for an amount of up to SFr250 million at an issue price of SFr6.80 per new share and would subscribe to new EFG AT1 capital instruments for an amount of at least SFr125 million”.

The bank added that the number of additional new EFG shares to BTG Pactual will be capped at a 30 per cent stake with the excess amount invested in additional AT1 capital instruments (in addition to the CHF 125 million commitment described above). In addition, EFG Group has committed to subscribe for new EFG shares in an amount of SFr125 million. In such case, the issue price for these shares would be SFr6.12 per share.  

Therefore, deal certainty is assured and in the scenario in which no rights issue occurs and in order to ensure that BTG Pactual’s stake in the combined group will not exceed 30 per cent, BTG Pactual would thus, in addition to the 52.6 million base consideration shares, receive as additional consideration shares 21.1 million new EFG shares and SFr257 million of AT1 capital instruments. EFG Group would subscribe to 20.4 million new EFG shares and its stake would reduce from 54 per cent to 42 per cent. In this scenario, EFG’s total capital ratio (Basel III fully loaded) would be expected to remain above 15 per cent in 2016 and the cash payment to BTG Pactual would be limited to SFr600 million, subject to changes in tangible book value and net new money.