The Belgian and French state have reached an agreement to inject € 5.5bn of new capital into the Dexia Group. Belgium will take up 53% or € 2,915m and France 47% or € 2,585m. Belgium would take up a lower proportion of the State guarantees on funding, but no agreement has been reached on that issue yet.
Dexia will submit an adjusted restructuring plan to the EC for which approval could be expected in January 2013. Dexia reported a net loss of € 2,391m for the first 9 months (€ -1,225m for 3Q12) of 2012 o/w € -1,380m was linked to continuing activities and € -1,034m to discontinued activities. One-off elements had a negative impact of € 1,988m. Total regulatory capital stood at € 7,343m resulting in a Tier 1 ratio of 9.0% and a core Tier 1 ratio of 8.5%. The CAD ratio stood at 11.2%. IFRS equity stood at € -3.56bn. Total Group credit risk exposure amounted to € 220.0bn.
Our View:
The € 5.5bn capital injection would restore Dexia’s shareholders equity which on a consolidated basis has been negative since the end of 2011. Lack of any information on the prolongation of the state guarantees (new ceiling for ultimate state guarantees would be € 85bn where Belgium would take up a – unconfirmed – 51.41%) and the cost associated with it, Dexia may end up being a cash burning bond hedge-fund.
At yesterday’s close, Dexia Group had a market cap of € 350.8m. A € 5.5bn share issue would lead to a massive dilution and leave close to nothing to existing shareholders.