Bank braces for board­room bat­tles

Financial Mirror (Cyprus) - - FRONT PAGE -

The next three days are crit­i­cal for the future of the Bank of Cyprus, as the pre­lim­i­nary re­sults for the first half are an­nounced to­day Wed­nes­day, a cru­cial share­hold­ers’ meet­ing to ap­prove a 1 bln euro cap­i­tal in­crease takes place on Thurs­day and the au­dited re­sults ap­proved by the cur­rent or a changed board of di­rec­tors on Fri­day.

But the big­gest prob­lem lies in two groups of dis­grun­tled share­hold­ers, each wor­ried that the cap­i­tal in­crease, as nec­es­sary as it may be for the bank’s vi­a­bil­ity, will jeop­ar­dise their stakes (and say) in the bank.

A court de­ci­sion on Tues­day stopped about 250 old share­hold­ers in their tracks who had hoped that they could se­cure an in­junc­tion to pre­vent the EGM from tak­ing place on Thurs­day, claim­ing that the hair­cut on their de­posits was il­le­gal and want­ing to pre­vent the ad­min­is­tra­tor of now de­funct Laiki Pop­u­lar Bank from sell­ing off the 18% stake legacy Laiki now held in BOCY.

The old share­hold­ers, who saw their stake in the bank di­luted to less than 0.5% last year af­ter the bail-in trans­formed large de­pos­i­tors into eq­uity own­ers and sub­se­quently a big­ger say in the restruc­tured bank, are urg­ing fel­low in­vestors to re­ject the cap­i­tal in­crease.

As fair as their de­mand might seem, a re­jec­tion of the cap­i­tal in­crease would see the likes of US ven­ture cap­i­tal­ist Wil­bur Ross and the Euro­pean Bank for Re­con­struc­tion and Devel­op­ment (EBRD) walk­ing away from a 540 mln euro cash in­jec­tion to get the bank up and run­ning again.

On the other hand, Rus­sian mi­nor­ity share­hold­ers have ex­pressed their dis­sat­is­fac­tion with the terms of the po­ten­tial cap­i­tal in­crease, say­ing their rights are in­fringed and the board is act­ing “ex­clu­sively for the ben­e­fit of Western in­vestors and the au­thor­i­ties of the is­land.”

Th­ese share­hold­ers, grouped un­der the um­brella of the “Cen­ter for the Pro­tec­tion of Rights of Share­hold­ers and In­vestors of Cypriot Banks” said that their stakes will be di­luted af­ter any cap­i­tal in­crease and that they were dis­qual­i­fied from par­tic­i­pat­ing in the pri­vate place­ment to “cer­tain in­sti­tu­tional in­vestors in the Euro­pean Union who are ‘qual­i­fied in­vestors’ and sim­i­larly qual­i­fied in­sti­tu­tional in­vestors in other ju­ris­dic­tions.”

They said the ‘claw­back’ phase for the 20% of the cap­i­tal in­crease of­fered be­yond the pri­vate place­ment was al­lo­cated among par­tic­i­pat­ing share­hold­ers pro rata based on their share­hold­ings at the time of al­lo­ca­tion, ex­clud­ing any shares ac­quired in phase 1.

“This con­fig­u­ra­tion of the cap­i­tal in­crease di­rectly in­fringes the rights of Rus­sian pri­vate in­vestors and busi­ness­men who were forced to be­come share­hold­ers of Bank of Cyprus in 2013” adding that the aim is “to force the Rus­sian mi­nor­ity share­hold­ers out of the Bank’s share­hold­ing struc­ture by di­lut­ing their stake and giv­ing pri­or­ity pur­chase rights not to them – the de­pos­i­tors af­fected by the sub­prime lend­ing pol­icy of this Cypriot or­ga­ni­za­tion – but to ‘qual­i­fied in­vestors’.”

It is ex­pected that the Cen­ter for the Pro­tec­tion of Rights of Share­hold­ers and In­vestors rep­re­sent­ing both Rus­sian and Ukrainian share­hold­ers will try and se­cure a com­mon front, pos­si­bly even to re­ject the cap­i­tal in­crease pro­posal.

“The deliberate re­stric­tion of the rights of share­hold­ers to par­tic­i­pate in the Bank of Cyprus cap­i­tal in­crease seems to be es­pe­cially cyn­i­cal in the light of at­tempts to le­git­imise it by in­tro­duc­ing the ‘for qual­i­fied in­vestors only’ re­quire­ments. Un­for­tu­nately, the Board of Di­rec­tors of the Bank seems to have for­got­ten that the mi­nor­ity share­hold­ers of Bank of Cyprus, for the most part, are not pro­fes­sional in­vestors and have re­ceived their shares as a re­sult of the forced ex­pro­pri­a­tion of their in­vest­ments in 2013,” said Yev­geniy Ko­gan, CEO of the Cen­ter.

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