Royal Bank of Canada is issuing $200 million of preferred shares to maintain strong capital ratios and a cost-effective capital structure, the bank announced on Wednesday.

RBC will issue 8 million Preferred Shares Series AR, priced at $25 per share. Holders of the shares will receive non-cumulative quarterly fixed dividends of $1.5625 per share for the initial period ending Feb. 24, 2014, to yield 6.25% annually.

The bank also granted the underwriters an option to purchase up to an additional 3 million shares at the same offering price.

The offering will be underwritten by a syndicate led by RBC Capital Markets, and is expected to close Jan. 29, 2009.

The shares are redeemable at par by the bank beginning Feb. 24, 2014, subject to regulatory approval. The dividend rate will then reset every five years at a rate equal to 4.5% over the 5-year Government of Canada bond yield.

The shareholders will have the right to convert their shares to non-cumulative floating rate preferred shares Series AS on Feb. 24, 2014 and on February 24 every five years thereafter, subject to certain conditions.

Holders of the Series AS shares will receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.5%.

Net proceeds from the issue will be used for general business purposes, RBC said.