Lloyds Banking Group Plc share price up, sells an 11.5% stake in TSB unit to comply with EU state aid rules

The second-largest government-owned lender in the U.K. – Lloyds Banking Group Plc has decided to sell £161 million ($263 million) of shares in TSB Banking Group Plc only three months after floating a 38.5% stake in an Initial Public Offering.

Lloyds explained in a statement: “The cash proceeds from the sale will be used for general corporate purposes and the transaction is not expected to have a material impact on the group, including its capital position.”

According to Lloyds statement, the lender will sell a total of 57.5 million shares, which equals to about 11.5% of TSB. The deal will reduce Lloyds stake in the lender to about 50%. The stock is being offered to institutional investors by UBS AG in an accelerated bookbuild.

The bank, which is currently 24.9% owned by the U.K. government, revealed that it intends to place the TSB shares at the price of 280 pence per share, 20 pence higher than its IPO price. According to Lloyds, the transaction wont have any material impact on its capital position.

The move puts the U.K. banking group closer to selling the entire division, a condition for its £20.5-billion bailout during the financial crisis. Lloyds spun off 35% of TSB in June as a separate listed company after it couldnt find a buyer for the unit. After the Initial Public Offering, the bank agreed not to sell any more shares of TSB for 90 days, which expired on Tuesday. This provided a small window to sell additional shares ahead of a closed period before the banks third-quarter results.

“We regard the small overnight placing as a win-win for both Lloyds and TSB,” said for Reuters the Investec analyst Ian Gordon. “We continue to see more material upside for Lloyds share price, while TSB, in our view, represents a very solid defensive play underpinned by a strong growth story in the longer term.”

Lloyds Banking Group Plc added 0.93% to trade at GBX76.91 per share at 11:56 GMT in London, marking a one year change of +2.55%. The company is valued at £54.39 billion. According to the Financial Times, the 25 analysts offering 12-month price targets for Lloyds Banking Group Plc have a median target of £0.89, with a high estimate of £1.15 and a low estimate of £0.550. The median estimate represents a 16.80% increase from the last price of £0.762.