BOC road-show for € 1bn recap, Hel­lenic to seek new funds

Financial Mirror (Cyprus) - - FRONT PAGE -

The Bank of Cyprus is ex­pected to em­bark on a road-show to at­tract new in­vestors and fresh funds from ex­it­ing in­vestors, an ex­er­cise that is ex­pected to raise about EUR 1 bln 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.

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 that “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 and 28. Join­ing them will be Deutsche Bank and VTB Cap­i­tal, part of the VTB Group, owner of the Cyprus-based Rus­sian Commercial Bank that sub­ject to the Eu­ro­zone stress tests in au­tumn.

Deutsche, HSBC and VTB ar­ranged the sale of a 5-year 750 mln euro 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 bln eu­ros 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 Wargam­ing.net and lo­cal fund Deme­tra – pumped in EUR 100 mln, was ex­pected to de­cide on 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 EUR 1.5 bln in­jec­tion from the state and seems to have am­ple funds to keep it afloat and deal with NPLs.

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