It appears that all of the equity finance required by BSCH is to be provided by Royal Bank of Scotland. It is understood they are to provide the US$700m BSCH is seeking in return for a mix of ordinary and preference shares. One report puts this at approximately £300m in ordinary and £200m in preference shares. Royal Bank of Scotland owns around 2% of BSCH currently whilst BSCH owns 9.2% of RBS. The new shares will equate to around 1% of the bank's share capital.
The money is required to help finance the purchase of Banco do Estado de Sao Paulo. Many in the market believe that BSCH paid to much for the Brazilian bank. BSCH continues to defend the decision, saying it had been prepared to pay more for the share of the Brazilian market it gained. It was the only foreign bank to remain in the bidding for the bank as the remainder withdrew believing that they would not gain a return on the investment required. The fact that BSCH bid more than three times the next highest bid also added to the market belief it had bid too much.
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