Qatar is to take a 5 percent stake in the Brazilian unit of Spanish lender Banco Santander, with a $2.7 billion investment that adds to its big bank deals in recent years.

Santander, the euro zone's biggest bank, will issue bonds to Qatar Holding that are convertible into old or new shares in Banco Santander Brasil after three years.   

The conversion price is 23.75 Brazilian reales per share and the bonds have an annual yield of 6.75 percent in dollars until converted.

The bonds will bolster Santander's capital by about 25 basis points when converted.

Analysts have said the Spanish bank may need to raise capital to bolster its balance sheet after a string of deals this year and in the face of tougher new capital rules.   

"This deal makes sense for Santander since its latest buys have eaten into capital, but considering the benefit is still three years away, it looks like they also wanted funds to keep expanding in Brazil," said Nuria Alvarez, analyst at Renta4.   

Shares in Santander closed up 0.64 percent at 9.54 euros on Monday, compared with an 0.27 percent gain for Spain's blue chip index.

Santander floated the Brazilian arm a year ago, which raised $8 billion to rank as the country's largest IPO. The deal with Qatar will help Santander's commitment for the unit to have a free float of 25 percent by the end of 2014.    

The deal will give Qatar Holding exposure to one of South America's top banks. It already owns stakes in Agricultural Bank of China, Barclays and Credit Suisse.

Qatar bought its stake in Barclays when the British bank was seeking investors to avoid needing a taxpayer bailout in October 2008. Qatar bought 1.75 billion pounds of bonds paying an annual coupon of 9.75 percent, before converting into Barclays shares.

The two firms have kept close links, and Barclays Capital is advising Qatar on the Santander deal. Bank of America Merrill Lynch is advising Santander. - Reuters