Valentino Za, Giuseppe Fonte and Pamela Barbaglia

MILAN (Reuters) – Monte dei Paschi di Siena’s talks with banks to guarantee the last share sale will continue until Wednesday as underwriters seek assurances about how many shares they can keep on hand, four people familiar with the matter said.

MPS has scheduled a board meeting on Tuesday to determine the terms of a share issue worth up to 2.5 billion euros ($2.4 billion), the Tuscan bank’s seventh in 14 years, following 2017’s 8.2 billion euro.

However, the board had to adjourn the meeting because the group of eight lenders who had previously committed to clear the unsold shares were not ready to sign the underwriting agreement, the sources said.

The signing won’t happen before Wednesday, the sources said, speaking on condition of anonymity because the discussions are private. One person added that it could take until Thursday morning.

That would leave MPS with very little time to get its share offer prospectus approved by domestic market regulator Consob before its planned debut on Monday.

MPS needs even more money to cut 3,500 staff through costly early retirements by the end of the year, and to cover a potential capital shortfall of up to €500 million that could materialize in the first half of 2023.

The two sources said it takes time to go through all the documents that need to be signed, while a broad agreement has already been reached.

However, another person close to the deal said the banks would sign off only when they had “full visibility” of the deal’s chances of success and that “some money is still missing”.

Rocky markets and a demand size of more than 10 times MPS’s current market value have complicated negotiations to sell the shares.

Banks have long seen that entering the market without a core of investors is too risky.

The new stocks will be valued at higher MPS than healthier peers, exposing underwriters to potential losses on any stocks left on their books, bankers and analysts say.

Further exasperating lenders, MPS chief executive Luigi Lovaglio balked at asset manager Anima Holding’s offer to buy a stake in the issue as part of a new commercial deal with the Siena-based bank.

Underwriters can walk away thanks to a clause that makes the final contract subject to positive feedback from investors.

Lovaglio can at least count on the support of the French company AXA, MPS’s partner in the insurance joint venture, which, according to sources, has offered to invest at least 100 million euros.

On Tuesday, a source familiar with the matter told Reuters that MPS had received about 30 million euros ($29 million) from local non-profit banking funds in its home region.

Lovaglio also turned to holders of junior MPS debt, such as US fund Pimco, after the price of such bonds fell to half their face value on fears they could be converted into equity.

Like other shareholders, the value of Italy’s shares will be wiped out in the new issue, costing taxpayers €5.4 billion.

Based on the lender’s 64% stake, Rome can inject another 1.6 billion euros into MPS to cover the new issue, but the rest must come from private hands because of European Union rules on state aid to creditors.

(1 dollar = 1.0302 euros)

(Reporting by Valentina Za in Milan and Giuseppe Fonte in Rome; Editing by Alexander Smith, David Evans and Richard Poulin)

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