Unicredit rights issue – a few more thoughts
The 463 page prospectus is quite an interesting read. Especially the sections about liquidity and the German sub are interesting. That’s good news for German clients of Unicredit (including me), although maybe not for Unicredit.
Market value listed Subsidiaries
I find it quite interesting, if one looks at the listed subsidiaires of Unicredit.
The 59% stake in Polish bank Pekao is worth 4.9 bn, the 84% in Zagrbacka 1.5 bn EUR and the indirectly owned 40 in Yapi around 2 bn EUR. That makes 8.4 bn EUR. This is roughly 1.5 bvn EUR more than the current market cap of Unicredit (shares + rights) before the 7.5 bn EUR cash injection.
If one believes thath the value of Unicredit increases by the amount of the cash injection, then all the Unicredit businesses (Germany, Italy etc.) are valued implictly at -1.5 bn EUR.
There seems to be a traded short Mini Future for Intesa, however trading is thin and spreads are wide.
If one hedeges with the FTSE MIB or the MSCI Italy, one should be aware, that ENI and ENEL are ~40% of the index. So the “hedge” is basically a short on the Italien energy sector.
Delta hedging book runners
One part of the selling pressure which acts procyclical could be delta hedging of the underwriters. Their backstop at 1.94 EUR is basically a 2 week put option they gave to unicredit.
At “issuence”, i.e. announcement, the Delta of this option was around 3% (based on actual vola), currently the delta is ~-19%. If the bookrunners delta hedge, then they have to sell (short) more and more shares if the price goes down. This would also explain the lending fees for UCG shares which are currently around 5% p.a. (vs. 10 bpos in normal times).
Of course this also works the other way round, if the price goes up, the bookrunners have to buy shares. So the fixed underwriting commitment could be one of the reasons for the huge volatility at the moment.