HB EGM rubber stamps cap raise to fund Co-op takeover

Shareholders gave their nod of approval Wednesday to Hellenic Bank’s proposed capital increase that will fund the takeover of the ‘good assets’ of the state-controlled Cyprus Co-operative Bank, a process that will take about 15 months and will create the island’s second biggest lender.

The go-ahead paves the way for a EUR 150 mln capital increase, of which EUR 50 mln has been subscribed to by a division of global fund managers PIMCO through a private placement, while the remaining EUR 100 mln will be underwritten by local investment fund Demetra and the Czech-based Emma Group in the form of a rights issue.

The rights will initially be offered to existing shareholders for which a prospectus will be issued at the end of October, followed by trading of the rights on the Cyprus Stock Exchange in November, exercising of the rights in early December and the listing of the converted new shares by the end of 2018.

If the rights are not fully subscribed and Demetra exercises its privilege, it may become the bank’s biggest shareholder with a stake of up to 20%. PIMCO’s stake will 17% and the fate of the other major shareholders (Wargaming and Third Point) will be determined from their willingness to subscribe to the rights issue. In the case that all rights are subscribed equally by all shareholders, then Demetra will retain a 8.3% stake from its present 10% shareholding.

CEO Yiannis Matsis told a press briefing that nearly 100% of those present at the morning’s extraordinary general meeting (EGM), representing some 76% of all the bank’s shareholders, approved the capital increase, making this “a historic day for the bank and the island’s banking sector.”

He said that subject to regulatory approval, the ‘integration period’ will begin in the first week of September, after which “up to” 1,100 staff from the Co-op will be gradually absorbed into the Hellenic payroll, raising the workforce from 1,400 to 2,500, while the number of branches of the new merged entity will reach 124 locations, making it the biggest retail network on the island. With both banks currently operating 224 branches, some 100 will have to close.

Matsis said that the final value of the asset transfer will be clarified over the next two months, as the Co-op’s deposits that will be transferred to Hellenic were estimated at about EUR 10.045 bln as at December 31, 2017. He acknowledged that there was a tendency for depositors to flee the CCB from January this year, up until June, when the deal with Hellenic was announced and controls were put in place to prevent further draining of the Co-op’s funds.

After the takeover, Hellenic will become the second biggest bank with a 22% market share in loans (BOCY: 30% market share), and an estimated 32% share of deposits (BOCY: 37%). Accounting for common clients, the customer base will grow from 260,000 to 556,000, even after absorbing 400,000 from the CCB.

The consolidated balance sheet will be EUR 16.84 bln, with the non-performing ratio per its loans book dropping from 52% to about 25% in the medium term and to 20% in the long term. This also raises the bank’s capital adequacy benchmark CET1 from 12.9% to a healthier 14%.

The bank will acquire the CCB’s ‘good assets’ that includes some EUR 4.5 bln in Cyprus government bonds, considered ‘short term’ with a maturity of up to five years, as well as EUR 247 mln in capital at a cost of EUR 74 mln, which added to its own EUR 529 mln, plus the EUR 150 mln from the capital raise, will give it a pro forma capital position of EUR 852 mln.

It will also inherit EUR 1.88 bln in performing loans, just over EUR 2 bln in government-guaranteed performing loans and a further EUR 425 mln in government-guaranteed nonperforming loans, for a total loans book of EUR 6.27 bln, more than a third of its current portfolio.

Hellenic Bank has already received a ratings review for a possible upgrade by the major ratings houses, which coincides with the government’s announcement that it will soon achieve a sovereign ratings upgrade and will return to investment grade, after lingering in the ‘junk’ status for the past six years, caused by the banking collapse, economic crisis and subsequent bailout of EUR 10 bln, from which it exited in March 2016.