State plans to in­ject more cash to aid CCB sale

Financial Mirror (Cyprus) - - FRONT PAGE -

It seems the gov­ern­ment is plan­ning a sup­ple­men­tary bond is­sue to re­duce the cap­i­tal needs of the in­vestor who will take over the good as­sets of the trou­bled Cyprus Co­op­er­a­tive Bank for a re­duced EUR 250 mln.

Ac­cord­ing to the CNA, talks be­tween the CCB, the bank’s fi­nan­cial ad­viser Cit­i­group and the Min­istry of Fi­nance with suitor Hel­lenic Bank have ad­vanced sig­nif­i­cantly, but there are a few tech­ni­cal is­sues re­main­ing, which if solved the deal could be sealed within days.

Out­stand­ing tech­ni­cal is­sues, ac­cord­ing to re­ports, sur­round the fi­nanc­ing gap, that is the dif­fer­ence be­tween Hel­lenic’s as­sets and li­a­bil­i­ties of the CCB.

The Fi­nance Min­istry seems to be putting for­ward so­lu­tions which con­tra­dict the gov­ern­ment’s pre­vi­ous dec­la­ra­tions of not re­peat­ing mis­takes of the past when banks were bailed out be­cause they had to be, and not be­cause they were vi­able.

The gov­ern­ment ap­pears to be will­ing not only to cover the dif­fer­ence be­tween HB cap­i­tal re­sources and CCB li­a­bil­i­ties, but also to guar­an­tee any fu­ture losses of the ven­ture.

CNA, cit­ing sources close to the ne­go­ti­a­tion pro­ce­dure, said the gov­ern­ment is putting for­ward the use of two tools to lighten the cap­i­tal needs of the fu­ture owner of CCB.

Firstly, a new gov­ern­ment bond will be is­sued, with the state - as in the case of the EUR 2.35 bln de­posit ear­lier in the year - will ac­quire own­er­ship of as­sets that HB does not want or eval­u­ates at a lower than nom­i­nal value.

At the same time, an As­set Pro­tec­tion Scheme (APS) will be im­ple­mented to cover fu­ture losses for HB caused by any as­sets (loans) ac­quired. Ac­cord­ing to the sources cited by CNA, the state is to guar­an­tee that these losses will be cov­ered if they oc­cur.

The is­sue of a new bond and the use of APS will re­duce the amount of funds Hel­lenic will need to cap­i­tal­ize the as­sets it will ac­quire. In that re­gard, the same sources es­ti­mate that HB’s cap­i­tal re­quire­ments have now fallen be­low EUR 300 mln.

Mean­while ques­tions over Hel­lenic Bank’s fu­ture share­hold­ing struc­ture to emerge af­ter the cap­i­tal in­crease have yet to be ad­dressed.

Re­port­edly, At­las Mer­chant Cap­i­tal, JC Flow­ers and Pimco will be in­volved in the new share struc­ture, while Third Point Fund, which cur­rently owns 26% of Hel­lenic’s share cap­i­tal, has not said whether it wishes to par­tic­i­pate in the cap­i­tal in­crease or not.

If the gov­ern­ment goes down the road of smooth­ing the way for Hel­lenic, a neg­a­tive re­ac­tion to the ne­go­ti­ated deal can be ex­pected from Brus­sels.

Ac­cord­ing to sources, the gov­ern­ment’s move will be per­ceived as an ef­fort to re­duce the cap­i­tal needs of the new owner from around EUR 550 mln to EUR 250 mln through ac­count­ing py­rotech­nics.

Euro­pean su­per­vi­sors have de­manded with­out fur­ther bur­den­ing tax­pay­ers.

EU mone­tary author­i­ties do not wish to see an­other state

clear

so­lu­tions, in­ter­ven­tion to­wards the CCB, es­pe­cially dur­ing the process of its ac­qui­si­tion. The state has fi­nanced the Cyprus Co­op­er­a­tive Bank to the tune of EUR 4.2 bln to date.

It should also be noted that the state’s lat­est in­ter­ven­tion to bail out the CCB in April with a EUR 2.5 bln de­posit was made with­out the prior ap­proval of the Di­rec­torate-Gen­eral for Com­pe­ti­tion of the EU. Euro­pean author­i­ties con­tinue to em­pha­size to their Cypriot in­ter­locu­tors that the key cri­te­rion for a suc­cess­ful out­come of the process is the vi­a­bil­ity of the new bank, with the ECB not­ing that the new bank’s NPL’s should not ex­ceed 20% of its to­tal lend­ing port­fo­lio.

Mean­while, Hel­lenic Bank an­nounced it has com­pleted the EUR 144 mln sale of its non-per­form­ing loan port­fo­lio, of pre­dom­i­nantly non-re­tail se­cured and un­se­cured ex­po­sures, to B2Kap­i­tal Cyprus Ltd.

B2Kap­i­tal Cyprus Ltd, a sub­sidiary of B2Hold­ing ASA, a Nor­we­gian cor­po­ra­tion listed on the Oslo Stock Ex­change li­censed by the Cyprus Cen­tral Bank to op­er­ate as a credit ac­quir­ing com­pany, is take over a port­fo­lio of loans given to 1,082 bor­row­ers and 1,809 fa­cil­i­ties.

The trans­ac­tion, said the an­nounce­ment, is con­sis­tent with the Bank’s strat­egy of “fix­ing” the bal­ance sheet and at the same time it is in line with the Euro­pean Cen­tral Bank and In­ter­na­tional Mone­tary Fund guide­lines on the man­age­ment of non-per­form­ing loans.

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