Local
articles | 19 October 2014

EBRD ready to provide equity to Cypriot banks if needed

The European Bank for Reconstruction and Development (EBRD) has not ruled out the possibility of buying a stake in Cyprus' banks, EBRD Cyprus office head said recently.

The EBRD began operations in Cyprus following a request from the Cypriot authorities. The Bank’s first move on the island was the acquisition of 5.12% of the island’s largest lender, Bank of Cyprus, as part of a €1 billion capital raise.

“We are open to provide equity to other banks if it is needed, and if there is a role for EBRD. I cannot exclude it but at the same time we would look at a wide range of instruments. We really need to see what those financial institutions need. Is it equity, is it help with issuing securities, is it training for credit officers for different ways of lending, is there a need for a change in corporate governance, it will be matched to the needs of individual institutions,” Krkoska said.

The EBRD’s presence in Cyprus comes at a time of deep adjustment of the economy, following a €10 billion bailout that featured a haircut of banking deposits over €100,000.

“Banks need to continue with their restructuring. We are at the start of the process, so some of them will need help with issuance of bonds, some with additional equity, some with restructuring of their way their operations. But again, the restructuring process is not just equity issuance or issuance of bonds. It is more than that, so we really have to link our support to what is needed,” Krkoska added.

The EBRD official said the plan is to invest up to €700 million in the Cypriot economy until 2020, focusing on the financial sector, energy, privatisations and providing finance to projects of individual companies.

He said the bulk of these funds was expected to be invested in the early years, as he anticipates the economy to pick up pace.

“I am optimistic and I expect that recovery will be faster and stronger than what you can see now in the crisis,” he said.

Krkoska said the funds could be even more if there was sufficient demand, or good projects, or if the telecommunications company was sold at a much higher amount than expected.

As part of the bailout conditions, Cyprus needs to implement a privatisations programme to garner €1 billion by 2016. The first state-owned organisations to be privatised is Cyprus Telecommunications Authority (Cyta) and the Cyprus Ports Authority.

The EBRD, Krkoska noted, would assist the government in the privatisation process but he did not rule out buying a stake in Cyta. “We would support privatisation through equity investments at the time of privatisations. Before privatisation we could also provide a pre-privatisation loan to help enhance the value of the company to make some investments, which would increase the price for the government, or we could provide convertible loans, which would be converted to equity at the time of the sale. So there are various ways on how we could support privatisation,” he said.

Krkoska said the EBRD was interested in helping the authorities to make a success of the privatisations “not just generate money for the budget but making the ICT sector more competitive and the privatised company would help other companies in the sector to grow and develop,” he added.

Furthermore, in view of Bank of Cyprus’ Annual General Meeting for the election of the new Board of Directors, Krkoska said he assumed the EBRD would support the nomination of Josef Ackermann, former CEO of Deutsche Bank as non executive president, proposed by the BoC largest share holder Wilbur Ross, who also included an EBRD representative in his proposal.

Asked if Ross had consulted the EBRD before proposing the list of ten candidates, Krkoska said “yes there is an understanding.”

“The nominees were done by our experts in the financial sector team in London and I assume they have discussed all candidates we have a common view on those nominees,” he went on to say.
He noted that the proposed persons “have huge experience and it is excellent to have those people to deal with quite a difficult restructuring case.”

“At the same time I expect all the share holders and the Board nominees will work together as a team so it will be a very much joint effort in trying to restructure the Bank of Cyprus and make it a healthy and strong institution again,” he concluded.

Source: Cyprus Mail

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