Today, KBC Groep NV announced that it will issue €3.5 billion in non-transferable, non-voting securities to the Belgian government. KBC Groep will use the proceeds of the transaction to increase its core Tier 1 capital by €2.25 billion to 8.2%. The transaction is “designed to avoid dilution of existing shareholders, while providing additional certainty to customers, counterparties and debt holders.”

Key financial details:

  • The securities will be issued at €29.50 per security. 
  • The annual cash coupon per security will be the higher of €2.51 (8.5%) or an amount equal to 105% of the dividend paid on ordinary shares in 2008, 110% for 2009, and 115% for 2010 and so on. 
  • No payments will be paid on the newly issued securities if no dividend is paid on ordinary shares. 
  • KBC Groep announced it will not pay a dividend for 2008; therefore, no payments will be made on the newly issued securities for 2008. 
  • The securities are ranked pari passu with ordinary shares. 
  • KBC has the right to repurchase all or some of the securities at any time at 150% of the issue price; however, the Belgian government can require the buyback to be settled by exchanging one security for one ordinary share. 
  • KBC is entitled to convert all or some of the securities into ordinary shares on a one-to-one basis, beginning three years after the issuance 
  • The Belgian government has the option to put the securities to KBC for redemption, beginning any time after three years from the date of issuance, for in cash at 100% of the issue price. 
  • KBC Groep’s Executive Committee had previously decided to forego all bonuses (in cash, options, or shares) relating to KBC Groep’s performance in 2008. 
  • The Belgian government has the right to nominate two members for KBC Group’s Board of Directors, to be appointed at the next Annual General Meeting of Shareholders.

KBC Groep’s CEO said of the transaction, “it is prudent to proactively strengthen our excess capital further in order to consolidate and reinforce our competitive position, which will be to the benefit of our customers, shareholders and staff.” This announcement follows similar initiatives around the world aimed at making more capital available to financial institutions.