articles | 21 December 2017

Co-op aims at NPL reduction enabling €300m IPO inflow

The state-owned Cyprus Cooperative Bank is increasing its efforts to reduce its delinquent loan portfolio and so maximise the potential inflow from the capital increase scheduled next year as investors maintain a wait-and-see stance, two sources said.

“Our official goal is to raise €200m but we will aim for €300m,” a co-op source familiar with the matter said in a telephone interview on Thursday.

The bank, over 99% of it government owned and recapitalised in 2014 and 2015 with almost €1.7bn, is working on a listing on the Cyprus Stock Exchange to prepare for an initial public offer (IPO) next summer. In order to attract both institutional and strategic investors, the second largest Cypriot lender appointed in September Citigroup as global coordinator of the capital increase.

On Thursday, Politis reported that the bank, which struggles with a €6.7bn non-performing loans mountain accounting for 58.8% of its portfolio, has attracted investor interest from outside Europe, including China. A senior co-op official said on Tuesday that the bank is expecting to reduce its non-performing loans to €6.5bn by the end of the year.

The bank, which exhausted all margins of tapping state aid, has an obligation to ultimately reduce the government’s stake to below 25%.

Because of their high non-performing loans ratio, South-European banks are traded on the secondary market already at a discount, the source said.

“Investors do not expect that they will be able to collect all those loans classified as non-performing loans,” he added. “Hence we need to increase the ratio of market value to equity by reducing non-performing loans which will help increase the capital inflow”.

A second source also familiar with the matter said that after an initial meeting held in London early this month attended by several investment funds, investors indicated that they would wait to see who will win next year’s presidential elections before deciding whether they will bid and if yes, at which price.

Communist Akel, which is backing Stavros Malas and opposes privatisations in general, is also rejecting the notion of privatising the Cyprus Cooperative Bank. This would in turn effectively prevent the bank from receiving fresh capital in the medium-term even from the government as European legislation provides for a seven-year cool-down period before a government can provide state aid to a company.

Diko president Nicholas Papadopoulos is campaigning based on a promise to write down debt and relieve guarantors. The government under President Nicos Anastasiades which proposed earlier this year to hand over up to 25% of the bank’s equity to private investors, had to shelve its plans after the Central Bank of Cyprus intervened.

Source: Cyprus Mail

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