Saxo Bank has today announced that it has strengthened its capital base by issuing Convertible Tier 2 Notes in exchange for EUR 46.25 million and by issuing new equity capital in the amount of EUR 31.25 million.
The entire €77.5 million was invested by CarVal Investors, a $10 billion money management firm which usually specializes in distressed debt and credit-intensive assets.
The mechanism for the €31.25 million equity raise was a rights issue, whereby existing Saxo Bank shareholders agreed to waive their rights, enabling CarVal to take up the full €31.25 million for a 2.5% stake in the company.
Doing the math, that means that CarVal acquired their stake based on a €1.25 billion valuation for Saxo Bank.
Since January 15, when many brokerages were exposed to negative client balances as a result of the Swiss National Bank having removed the 1.20 peg on the EURCHF pair sending the value of the Swiss Franc into rapid appreciation, Saxo Bank has wanted to strengthen its capital base, and the firm today confirmed to LeapRate that it has now achieved that by today’s capital raise.
Saxo Bank further stated to LeapRate that had there not been an opportunity to raise capital, the company would have had to build capital organically, however Saxo Bank has maintained a strong desire to continue on the growth track, and therefore considered it most appropriate to issue bonds and shares.
Saxo Bank’s exposure to negative balances on January 15 amounted to approximately $107 million, however the company remained well capitalized.
Recently, in an interview with LeapRate, Saxo Bank’s Head of Markets Claus Nielsen stated that it is very likely that more volatility will punctuate the FX markets in the immediate future, and that the company’s approach takes that into consideration.
In a joint statement, Kim Fournais and Lars Seier Christensen, co-CEOs and co-founders of Saxo Bank said:
In the process of exploring opportunities in the market, we found a combination which allows us to both issue additional capital and raise equity capital which will benefit the Bank, the shareholders, investors and clients.
This framework enables Saxo Bank to not only meet potential future capital requirements, but also to consolidate our market position as a solid industry player. The investment is testament to the trust in the bank’s ability to capitalise on significant growth opportunities. We welcome CarVal Investors as new shareholders and note owners.
The Tier 2 instrument fulfils the new European capital regulations and is subject to conversion into ordinary shares if the common equity tier 1 ratio in the Saxo Bank Group and/or Saxo Bank A/S falls below 7 per cent. Following the issues then Saxo Bank A/S and Saxo Bank Group’s regulatory capital ratio are 22.8% and 19.0% respectively while the estimated solvency need is 13.8% and 12.8% respectively.