MADRID—Banco Popular Españ ol SA will launch a €2.5 billion ($2.8 billion) share sale in an effort to ease investor concerns about its capital ratio and massive pile of soured property loans.

Banco Popular, one of Spain's weakest major lenders, said Thursday the sale will be a rights issue, with shares offered to existing shareholders at a discount, a common practice in Europe.

The bank will issue around two billion shares at €1.25 each. The bank's stock closed at €2.36 on Wednesday.

Banco Popular's shares plunged 23% when they resumed trading on Thursday morning in Madrid.

The rights issue will allow the lender to boost its capital level—under international regulations known as "fully loaded" Basel III criteria—to more than 10.8% by the end of this year, the bank said.

Banco Popular has been trying to shore up its balance sheet since Spain's property boom went bust and some investors and analysts had expected a capital raise at some point this year.

The lender accumulated millions of foreclosed homes and half-finished property developments after issuing loans to property developers and home buyers during Spain's building frenzy. The bank has one of the biggest exposures to the property market among Spanish lenders.

In 2011, the bank bought regional Spanish lender Banco Pastor SA, which had failed European regulators' balance-sheet exams. The purchase strained Banco Popular's own balance sheet and the bank had to raise €2.5 billion to avoid a state-funded bailout the following year.

Banco Popular said UBS Group AG and Goldman Sachs Group Inc. will serve as underwriters on this transaction.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

May 26, 2016 04:25 ET (08:25 GMT)

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