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Sat 5 Nov 2016 10:03 AM

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Qatar mulls Monte dei Paschi's $5.5bn cash call - sources

Qatar's sovereign wealth fund is considering an anchor investor role in the world's oldest bank.

Qatar mulls Monte dei Paschi's $5.5bn cash call - sources

Qatar's sovereign wealth fund has expressed a preliminary interest in backing Monte dei Paschi di Siena's 5 billion euro ($5.56 billion) emergency cash call, two sources familiar with the matter said, although the response from investors in general has been lukewarm.

Qatar Investment Authority (QIA), estimated by industry tracker Sovereign Wealth Fund Institute to hold $256 billion of assets, has made investments in high-profile European assets such as Credit Suisse and Volkswagen.

The two sources said QIA was open to acting as an anchor investor in the Tuscan bank's capital increase, although no binding commitment had been made. One of the sources said a final decision by the Qataris was expected in the next two weeks.

Monte dei Paschi and QIA declined to comment.

Monte dei Paschi, the world's oldest bank, hopes to secure a firm commitment for a chunk of its recapitalisation by at least one anchor investor before a Dec. 4 referendum on constitutional reform that could unseat Prime Minister Matteo Renzi's government.

Italian press reports have said the bank's CEO Marco Morelli was due to visit Qatar to present the rescue plan to the QIA.

Many investors who attended an international roadshow conducted by the bank this week on its cash raising plans have so far been reluctant to get involved, a number of sources said.

The bank needs to raise a total of 5 billion euros by the end of the year or risk being wound down. As a result it is racing against the clock to raise the cash and offload some 28 billion euros in bad loans at below book value.

Chief Executive Morelli said on Oct. 25 he had not yet received "any solid, complete, binding" proposal from any potential anchor investor.

Another source close to the deal said U.S. investors had signalled interest in backing the plan provided that the bank raised at least 3 billion euros from one or more anchor investors and carried out a voluntary debt-to-equity conversion.

This would reduce the size of the share sale open to ordinary investors to 2 billion euros.

"If the overall amount of the capital increase (on the market) exceeds 2 billion euros, the deal falls apart," this source said.

Under a rescue plan led by JP Morgan and Mediobanca , the debt to equity conversion may include Monte dei Paschi's senior bonds as well as its subordinated debt.

This has hit the bank's senior bond prices and helped to push Monte dei Paschi's shares 9.2 percent lower on Friday. The stock has lost 83 percent of its value this year.

Several banking sources said that even a share sale of 2 billion euros would be a tall order for a bank with a market value of 680 million euros which has burned through 8 billion euros from two previous share issues since 2014.

Monte dei Paschi emerged as the worst performer in European stress tests that showed its capital would be entirely wiped out in a severe economic downturn.

A New York-based fund manager who attended the bank's roadshow told Reuters that the cash call offered little value for investors because the valuation of the bank was too high compared to healthier rivals.

Another source close to the bank said that persuading investors to come on board was proving hard, but not all of them had turned their backs. He said there was no plan B apart from the cash call which the bank aims to launch immediately after the Dec. 4 referendum.

"Everything is being done to rescue the bank but there is no certainty the plan will succeed," the source said.

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