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NAB announces $4.4 billion rights issue; to float UK unit

National Australia Bank
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National Australia Bank

National Australia Bank, the country's top lender by assets, on Thursday said it plans to raise A$5.5 billion ($4.38 billion) in a rights issue as it looks to demerge and float its troubled British unit by the end of the year.

The 2-for-25 rights shares will be issued at A$28.50 each, a 25 percent discount to Wednesday's closing price, in the latest move by Australia's biggest banks to shore up their balance sheets ahead of an expected tightening of capital requirements.

NAB's UK business, which includes Yorkshire and Clydesdale bank branches, has been a persistent thorn in its side, with charges for bad and doubtful debt behind recent annual profit declines.

Following the capital raising, NAB's pro forma cash earnings per share, diluted for the March 2015 half-year, is expected to be about 4.5 percent lower, the bank said. Pro forma cash earnings return on equity for the same period are expected to be 1.4 percent lower.

Macquarie Capital , Merrill Lynch Equities and Morgan Stanley Australia are underwriting the issue.

"The capital raising facilitates our proposed exit from the UK banking business and positions us ahead of anticipated regulatory changes," CEO Andrew Thorburn said in a statement.

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The major banks are expecting stricter capital rules after a government-backed review called for stronger capital levels, including lifting so-called risk weights on mortgages.

NAB reported a 5.4 percent increase in first-half cash earnings to A$3.3 billion, meeting forecasts. It unveiled a dividend of 99 cents, unchanged from the prior interim dividend.

It also said it had appointed former Treasury secretary Ken Henry as its chairman, replacing Michael Chaney.

The bank announced a re-insurance arrangement with a major global insurer for about 21 percent of its in-force retail advised insurance book, which will help it release A$500 million of core equity tier-1 capital.