Scotiabank is issuing 8 million preferred shares for gross proceeds of $200 million to enhance its Tier 1 capital structure, the bank announced on Wednesday.

The bank has agreed to sell the Preferred Shares Series 28 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The offering is expected to close on or after Jan. 30, 2009.

The 8 million shares will be issued at $25 per share, and Scotiabank granted the underwriters an option to purchase up to an additional 2 million shares at closing, which is exercisable any time up to 48 hours before closing.

Holders of the shares will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2014 yielding 6.25% annually, when declared by the bank’s board of directors.

The dividend rate will then reset every five years at a rate equal to 4.46% over the 5-year Government of Canada bond yield.

Holders of shares will have the right to convert their shares to non-cumulative floating rate preferred shares Series 29 of Scotiabank on April 26, 2014 and on April 26 every five years thereafter, subject to certain conditions.

Holders of the Series 29 shares will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.46%.

The offering is “part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure,” the bank stated.