€ 2 bln in fresh funds

Financial Mirror (Cyprus) - - FRONT PAGE -

Al­ready, the bank’s “turn­around CEO” John Houri­can has been parad­ing across in­ter­na­tional fi­nan­cial me­dia and stated on Bloomberg TV that he wants to use the float to in­crease the bank’s ex­po­sure to in­ter­na­tional in­vestors and to raise its mar­ket cap­i­tal­i­sa­tion to its book value (of EUR 3.5 bln).

“The Lon­don list­ing was ini­tially my idea. All our board mem­bers are say­ing we need the high­est stan­dard of cor­po­rate governance and trans­parency, we need to tell our story to a wider au­di­ence and we need to know that the stock, with this level of debt, can be widely owned by longer term in­vestors,” Houri­can told Bloomberg.

“Our stock is about faith. We’ve taken all the steps faster than we said, and the story holds for this to be a book-value bank.

“We’ve cut away all the over­seas ex­is­ten­tial risks, we’ve re­paid more than the Troika ex­pected, and de­posits are grow­ing again,” Houri­can said.

In its lat­est re­port for the 2015 au­dited fi­nan­cial re­sults, the bank de­clared that Group cus­tomer de­posits to­talled EUR 14.18 mln as at 31 De­cem­ber 2015, com­pared to EUR 13.61 bln at 30 Septem­ber 2015 and EUR 13.17 bln a year ear­lier, at 31 De­cem­ber 2014. “We can see that the mar­gins have held up,” Houri­can said.

Com­men­ta­tors have pointed out that the bank’s price-to-book ra­tio is still 0.45, still very much priced as a re­cov­ery story and as a stock that has prob­lem is­sues with non­per­form­ing loans (NPLs).

Houri­can said that that the Athens and Cyprus bourses pro­vided very lit­tle liq­uid­ity and the man­age­ment team had con­tem­plat­ing the list­ing for a year.

“We de­cided that Lon­don was the best mar­ket, it was a choice be­tween that or Euronext,” he said.

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Although reg­u­la­tors in Cyprus and Greece are un­happy with the move, the dual list­ing on the LSE FTSE250 ‘pre­mium’ mar­ket and on the CSE will pro­vide am­ple liq­uid­ity.

It is ex­pected that the list­ing, an­tic­i­pated within the sec­ond half of the year and prob­a­bly closer to the end of the third quar­ter, will also pre-empt some form of is­sue, ei­ther new stock, rights or even bonds, as the 8.9 bln shares in cir­cu­la­tion can­not on their own sus­tain the bank’s re­cov­ery, which in turn re­lies on the econ­omy’s re­turn to growth af­ter a long re­ces­sion.

Houri­can has also re­jected that the Lon­don list­ing would be an exit op­por­tu­nity for cur­rent share­hold­ers, in­clud­ing bil­lion­aire in­vestor Wilbur Ross and the EBRD.

“Wilbur pres­sures you on ev­ery­thing and that is the na­ture of hav­ing an ac­tive in­vestor,” he told Bloomberg.

As re­gards the re­cently-es­tab­lished realestate asset unit bur­dened with the as­sets linked to NPLs, the bank’s CEO said it does not aim to be­come the big­gest prop­erty owner in Cyprus.

“Hope­fully not, we have reg­u­la­tory lim­its what real es­tate we can own as a bank. But what we hope (to be­come) is a force for change in Cyprus, to use smarter ways to move the own­er­ship of as­sets, with­out ac­tu­ally flood­ing the mar­ket. We will be ac­tive in the prop­erty mar­kets.”

Dur­ing the same dis­cus­sion, Ju­lian Chilling­worth, CIO of Rath­bones, said that “what in­vestors want in a bank is pre­dictabil­ity and con­sis­tency in re­turn over the medium term. And the cur­rent cli­mate is more in­clin­ing to re­tail banking and away from in­vest­ment banking. Pre­dictable yield, pre­dictable re­turn.”

In a state­ment is­sued on Mon­day, the bank said that it “is pur­su­ing a pre­mium list­ing on the Lon­don Stock Ex­change (LSE).

“In or­der to achieve such a list­ing and to be con­sid­ered el­i­gi­ble for in­clu­sion in the FTSE UK in­dex se­ries (FTSE indices), the bank is con­sid­er­ing the in­cor­po­ra­tion of a new hold­ing com­pany. The bank has been in dis­cus­sions with our reg­u­la­tors and has con­sid­ered a range of op­tions. The bank is cur­rently con­sid­er­ing in­cor­po­rat­ing such a hold­ing com­pany in the UK. It is ad­vised by HSBC.

“There is no in­ten­tion to change the res­i­dency of the bank’s head­quar­ters, while the Group’s tax and banking reg­u­la­tory sta­tus are ex­pected to re­main un­changed.”

In sep­a­rate com­ments to a Bloomberg cor­re­spon­dent, Houri­can said that “noth­ing changes in the reg­u­lated en­ter­prise, noth­ing changes in who reg­u­lates the bank, noth­ing changes in the tax res­i­dency, noth­ing changes in the head­quar­ters, the only thing we’re talk­ing about here is the me­chan­ics of list­ing the stock so that in­vestors can in­vest.”

“The dis­cus­sion with us has been whether we’ll have a U.K. top com­pany, or the other rec­om­men­da­tion by our ad­vis­ers with the Jersey top com­pany. It’s likely that we’ll go with the U.K. (op­tion), although we have con­sid­ered Jersey as well,” Houri­can re­as­sured af­ter politi­cians’ hys­ter­ics that the bank was mov­ing its head­quar­ters out of the coun­try, rem­i­nis­cent of when An­dreas Vgenopou­los wanted to move now-de­funct Marfin Laiki out of Cyprus.

The dis­cus­sion in par­lia­ment had raised the is­sue of the rep­re­sen­ta­tion of legacy Laiki de­pos­i­tor-share­hold­ers on the bank’s board, an op­tion all po­lit­i­cal groups favour at the moment, as the coun­try pre­pares to go to the polls and elect a new House.

“Although there’s no tax payable on share trad­ing with Jersey, we will prob­a­bly go with U.K. to man­age rep­u­ta­tion, given the sen­si­tiv­i­ties around off­shore ju­ris­dic­tions,” Houri­can said.

The Group op­er­ates through a to­tal of 135 branches, of which 129 op­er­ate in Cyprus, and em­ploys 4,605 staff, with its lat­est vol­un­tary re­dun­dancy scheme fall­ing far shor of the re­quired num­bers. As at De­cem­ber 31, 2015, the Group’s to­tal as­sets amounted to EUR 23.3 bln and to­tal equity was EUR 3.1 bln.

A re­port quoted Houri­can as say­ing that the Group will keep a sec­ondary list­ing in Cyprus, but plans to ditch its other list­ing in Athens, where it sold its oper­a­tions sev­eral years ago.

In­vestors will be of­fered the op­tion of trans­fer­ring their shares to Lon­don or Cyprus and there is no plan to raise any fresh cap­i­tal from the move.

“The list­ing and, sub­ject to meet­ing the el­i­gi­bil­ity cri­te­ria, po­ten­tial in­clu­sion in the FTSE UK In­dex se­ries will en­hance the group’s vis­i­bil­ity and share liq­uid­ity,” the bank said in a state­ment last week.

It said a Lon­don list­ing would pro­vide “ac­cess to a greater pool of in­ter­na­tional cap­i­tal to­gether with greater pro­file and vis­i­bil­ity in the Euro­pean fi­nan­cial mar­kets”.

Last year, Bank of Cyprus made a net loss of EUR 438 mln af­ter tak­ing an al­most EUR 1 bln hit for higher pro­vi­sions on bad debts in re­sponse to pres­sure from the Euro­pean Cen­tral Bank.

The bank’s al­most EUR 14 bln of NPLs ac­count for 62% of its en­tire loan book — a painful legacy of the debt crisis that pushed the coun­try into a deep re­ces­sion.

While the lender, which has a dom­i­nant 28% share of the Cypriot mar­ket, has re­paid EUR 8.1 bln of its EUR 11.4 bln bailout funds, it still re­lies heav­ily on loans from Euro­pean au­thor­i­ties, the FT re­port said.

The bank’s shares re­sumed trad­ing in De­cem­ber 2014 but they have fallen sharply in the past six months to well be­low their heav­ily di­luted relist­ing price of EUR 0.24.

While the ma­te­ri­al­i­sa­tion of the plan would bring the bank un­der the su­per­vi­sion of the UK’s Fi­nan­cial Con­duct Au­thor­ity, it would not al­ter in any way the bank’s su­per­vi­sion by the Cen­tral Bank of Cyprus, the Cyprus Se­cu­ri­ties and Ex­change Com­mis­sion while the Sin­gle Su­per­vi­sory Mech­a­nism would re­main “the fi­nal su­per­vi­sory au­thor­ity”, the re­ported.

The pa­per quoted source as say­ing that the es­tab­lish­ment of a hold­ing com­pany will not af­fect the bank’s shares nor the com­po­si­tion of its board of di­rec­tors, while an­nual share­holder and board of di­rec­tors’ meet­ings will con­tinue to take place on the is­land.

“There is no in­ten­tion -and there has never been any- to re­lo­cate the bank’s or group’s head­quar­ters,” the source said.

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