MILAN (Reuters) - Italy's Monte dei Paschi di Siena (MI:BMPS) expects to offer to convert some of its subordinated debt into equity after a Nov. 24 shareholder meeting, called to approve a 5 billion euro ($5.4 billion) share issue, the bank's chief financial officer said.
The share sale is part of a turnaround plan at Italy's third-largest bank unveiled on Tuesday by new Chief Executive Marco Morelli.
The plan calls for the sale of 28 billion euros in bad loans at below book value and the raising of fresh capital by the end of December.
To limit the size of the share sale, Monte dei Paschi will offer a debt-to-equity conversion to some bondholders.
CEO Marco Morelli told a news conference the bank would offer the swap to both institutional and retail bondholders, but had yet to decide the terms and the conditions of the offer, which is set to last for about 10 days.
On the sidelines of the news conference, CFO Francesco Mele said the conversion would target mainly the bank's 5 billion euros in subordinated bonds, the holders of which "had more of an incentive" to back the plan.
Subordinated bondholders rank behind holders of senior debt in the event of default.
Monte dei Paschi emerged as the weakest lender in Europe in continent-wide stress tests in July and must raise capital and shed bad loans to avoid the risk of being wound down.
The Tuscan bank's subordinated debt rallied on Tuesday on the prospect of the conversion.
The yield on a subordinated bond due in September 2020
The CFO said the bank had received several proposals about the planned conversion from groups of bondholders.
($1 = 0.9197 euros)