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Lloyds raises funds to help in repaying government support

By Robert Barr | June 9, 2009, Tuesday | Print Edition

LLOYDS Banking Group Plc said yesterday that shareholders, including the United Kingdom, took up 87 percent of a 4 billion pound (US$6.35 billion) open offer of shares which will enable it to make a partial repayment of the government's support.

The result of the auction will make sure the government's stake in Lloyds remains at 43.4 percent of the bank's ordinary shares. However, the government's preference shares - which do not carry votes but pay interest and were issued when the bank was bailed out - will be redeemed, saving Lloyds 480 million pounds a year.

The government, which is the underwriter of the share offer, took up 43.4 percent of the new shares.

The book runners - Citigroup Global Markets UK Equity Ltd, JPMorgan Cazenove Ltd and UBS Ltd - are responsible for selling the remaining 13 percent of shares available under the offer.

If they find no buyers, the government will have to pick them up, increasing its stake in Lloyds beyond the current 43.4 percent.

Last year, the government invested 17 billion pounds in bailing out Lloyds, which ran into trouble with its takeover of HBOS Plc, buying a mix of ordinary shares with voting rights and non-voting preference shares.

That kept the government from holding a majority of the voting shares.

Shares in the open offer were priced at 38.4 pence, compared to Lloyds Group's closing share price of 66 pence on Friday.

Based on the initial take-up, Lloyds said it would redeem 3.48 million preference shares, and planned to redeem the remaining 525 million shares when the rest of the shares were sold.

The bank is still negotiating terms for participating in the government's program to insure banks against losses on bad assets.

Treasury minister Paul Myners said the share placing was a sign of progress.

"To imagine, three months ago, that we could have raised primary equity for a major UK bank experiencing the sort of bad debts that Lloyds was announcing is extremely difficult," Myners said in an interview with BBC radio.

"I think we have now moved into a new territory in which institutional investors are saying 'We now have confidence in UK banks, their capital is strong and they are clearly again lending and supporting the UK economy.' So it's good news," Myners said.

Lloyds' result contrasts with Royal Bank of Scotland's earlier share offer, priced above the current market price.

The offer was largely shunned by private shareholders, and the government wound up increasing its stake in RBS from 53 percent to just over 70 percent.

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