articles | 08 July 2014

Bank of Cyprus road-show for €1b recapitalisation

The Bank of Cyprus is expected to embark on a road-show to attract new investors and fresh funds from exiting investors, expected to raise about €1b from the markets and boost the lender’s capital adequacy levels by at least four percentage points.

This means that the bank’s Core Tier 1 level of 10.4-10.6% will be raised to about 14.6%, in time for the EU-wide stress tests of 128 systemic banks within the Eurozone to be announced in October 2014.

The pressure has been on local banks to secure a cushion of safety as they try to deal with rising levels of non-performing loans, often reaching 45-50% of portfolios, that are very difficult to recover amid an austerity-hit and cashless economy, where unemployment is still hovering at high levels of beyond 15%.

On Friday, the bank’s board ended weeks of speculation and friction when it agreed to proceed with an immediate capital increase, announcing “the Group’s management will engage directly with institutional investors. A possible capital transaction will be structured in a way that allows the opportunity for existing shareholders to participate.”

This means that present shareholders, including a mix of major local and Russian depositors who represent 80% and the pre-bail-in shareholders whose stake has been diluted to just 0.5%, will be able to take part in up to 20% of the new capital increase.

HSBC and Credit Suisse have been advising the bank on its recapitalisation plans and will also be arranging the sale of new shares between July 18 and28. Joining them will be Deutsche Bank and VTB Capital, part of the VTB Group, owner of the Cyprus-based Russian Commercial Bank thatwill also be subject to the Eurozone stress tests in autumn.

Deutsche, HSBC and VTB arranged the sale of a 5-year €750 million bond sovereign issue last month, the Cyprus government’s successful return to the markets last month after being locked out for more than three years. Also arranging the bond sale were Goldman Sachs and UBS.
Encouraged by its first official foray back into the markets, the government’s aim is to set the bar higher at €1 billion for a 7-year issue some time in autumn, following the outcome of the local banks’ stress tests.

Two other banks are taking part in the upcoming stress tests.  Hellenic Bank, that was recapitalised in December when three investors – US-based Third Point, online developer and local fund Demetra – pumped in €100 million, is expected to decide as early as this Tuesday if it too will proceed with a fresh capital increase, but smaller than that of the Bank of Cyprus.

The Central Cooperative Bank, the nationalised owner of the island’s restructured Coop Societies, received a €1.5 billion injection from the state and seems to have ample funds to keep it afloat and deal with NPLs.

Source: Cyprus Mail

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