EBRD pumping up to € 1 bln in SMEs and privatisations

The European Bank for Reconstruction and Development, the EU’s merchant bank for investments in troubled and emerging economies, may be lifting its exposure to the Cyprus market to about EUR 1 bln, having said last week it will up its funding facility to EUR 800 mln, up from the initial EUR 600-700 mln pledged until the end of the decade earlier in the year.

This is in addition to the EUR 120 mln the EBRD put aside during the recent capital increase of the island’s main lender Bank of Cyprus, giving it a stake of about 5% and proposing that restructuring and recovery advisor Arne Berggren from Sweden take a seat on the bank’s new board in the upcoming AGM on November 20.

Libor Krkoska, Head of the newly-established EBRD office in Cyprus, told the employers’ federation (OEV) chief Christos Michaelides on Thursday that the bank plans to invest in the energy and tourism sectors, the privatisation of semi government organisations and major projects, with packages more than EUR 10 mln each.

Krkoska will oversee investments and supervision of the allocation of EBRD funds. The government’s roadmap for privatisation aims to raise some EUR 1.4 bln over the next four years from the full or part privatisation of eight stateowned enterprises, including the profitable Cyta that enjoys a near 50% market share in the telecom sector, the power generating EAC that controls more than 90% of the electricity production and supply market and the Ports Authority that owns and operates the ports of Limassol and Larnaca and manages the licenses for upcoming marinas, commercial ports and other leisure projects.

Asked to elaborate on EBRD’s interest in energy, Michaelides pointed out that their interest is of a more general nature and includes renewable energy sources. He noted that Cyprus has comparative advantages to offer in this area. Last month, the EBRD forecasts zero growth for 2015 and a 3.5% fall of GDP in the current year for Cyprus.

The September report about the “Regional Economic Prospects in EBRD Countries of Operations” noted that conditions are gradually improving, but output is still expected to fall further this year with a bottoming out in 2015. For 2014 as a whole, the EBRD expects GDP to fall by 3.5%, which is slightly better than the recent expectations of -3.2% by the Troika of international lenders, itself revised down from -4.2%.

The EBRD added that there more usual uncertainty surrounding the 2015 forecast, expecting a bottoming out of the economy by then, with zero growth for the year. The report said the economy continued contracting in the first half of 2014, albeit at a slower pace, thanks to a gradually improving external environment and rigorous implementation of the authorities’ adjustment programme, supported by the Troika.

It added that the country remains in deep recession, but signs of confidence and optimism are becoming increasingly apparent.

EBRD’s decision to return to Cyprus after more than a decade of post-EU accession prosperity and focus on privatisations, the financial and corporate sectors was announced in May after a decision at the shareholders meeting in Warsaw.